Illiquid options are those options where there is no frequent trading. Many Options are illiquid. And that gets users into traps such as:
- Not getting a trade to exit when you want to get an exit
- Getting a wide bid-offer spread, and paying for it
- If you are stuck in a single stock option towards the expiry and not getting an exit, you will have to take physical delivery of the stock. That will be super expensive
So which ones are liquid options?
- At the money options (ATMs) and Out of the Money Options (OTMs) near the ATM. In the money options (ITMs) are usually illiquid
- Trade near month expiry for stocks, and weekly expiries for Bank Nifty and near weeklies and monthlies for Nifty
- Nifty, Bank Nifty, a few big stocks, or stocks where there is news or events
How do you know if an option is liquid?
Simple. Look at the bid-offer ladder. If the price difference between the bid and offer is wide.
Sounds tough. Is there an easy way out?
Yes, there is! You can forget all of this and start using our option chain which comes with an illiquid option filter