What defines "slippage" in the context of options trading?

Slippage in options trading refers to the phenomenon where orders are executed at prices that differ from the expected or desired prices. This can occur due to various factors, such as market volatility or delays in order execution. When a trader places an order expecting to buy or sell an option at a specific price but the market moves quickly, the actual execution price may vary, leading to slippage.

For instance, if a trader aims to buy an option at $2.00 but due to market fluctuations, the order is filled at $2.10, the difference of $0.10 is considered slippage. Understanding slippage is crucial for traders as it can affect the overall profitability of their trades. It highlights the importance of not just the strategy for selecting options but also being aware of market conditions and execution practices.

The other choices do not accurately capture the essence of slippage. An excess in trading volume doesn't directly relate to individual trade executions; executing orders at expected prices indicates there is no slippage; and a method to reduce transaction costs focuses on cost-efficiency rather than the execution price discrepancies that characterize slippage.