Some of the DITM options are very thinly traded say under 10 contracts per day. Should you avoid those even the underlying is actively traded like SPY, QQQQ?
Hey a529612. I wouldn't avoid I-T-M Calls at all. Deep ITM options should trade like water, no matter what the open interest. Your problem is that the price you can get in at reflects the cost of carry and a little vig for the market maker. One of the questions you should ask yourself is are you short term trading? If you're in today & expecting to get out tomorrow, even though the difference between bid/ask has been tightening lately, you might be better off with stock. Another q would be why deep ITM? If 1 option is trading at $30 and the strike price 10 points higher trading at $20.40, why trade the $30 option? Next week the option $20 ITM might still have $0.30 time premium, they both still have big deltas, etc. Unless you are trading a BIG position, open interest shouldn't be that important a consideration. I like ITM for some positions, deep ITM - that's up to you. kny 3
I see no reason not to trade them if you want to, normally if they get out of line there should be a quick arbitrage, you should have decent quotes in other words.
I'm looking at some ITM puts with delta close to -1. I want to short the underlying stock but don't want to expose myself to unlimited risk so I'm using the ITM put as short stock surrogate.
The only problem for me in the past with thinly traded stocks/options is not Buying but trying to SELL them...I always get raped:eek:
My recent experience has been: the deeper ITM I go, the lower the volume and the wider the spread (usually much wider).