Question about option liquidity

Discussion in 'Options' started by breeze, Jan 2, 2010.

  1. breeze

    breeze

    I am learning option trade. My question is: If a stock option only has less than a hundred of open interests, and if I buy 5 contracts of Feb 2010 put and the stock price is moving lower, can I always close (sell) my put position at any time? Or do I have to exercise the option because no body wants to buy my put?

    I want to buy option instead of the stock, but I am afraid I may have difficulty selling my put before the expiration date.

    Thanks.
     
  2. Is the liquidity that low to not have any buyers? Since the option price is increasing you are on the safe side until the execution date. Keep looking for a buyer.
     
  3. NoDoji

    NoDoji

    You misunderstand "open interest". OIC has a very informative site that addresses this and many other questions:

    http://www.888options.com/help/faq/trade.jsp?prt=nyse#5
     
  4. rwk

    rwk

    These are the kinds of questions you should be considering. As you suspected, liquidity on thinly-traded options is exceedingly poor. Your chance of making money on such a trade as a beginner is remote. You might consider trading high-volume, liquid options to start and moving to thinner issues as you gain experience. You might also look into holding options through exercise to avoid paying the bid/ask spread when you exit.
     
  5. breeze

    breeze

    Thanks for the above replies. I will start with options that have high liquidity so that I can easily sell them close when my target is met.
     
  6. perhaps you shouldnt be trading options since you have no idea what you are doing
     
  7. You will be always able to sell your options - there are always money makers there who are under obligation to buy them from you. The low trading volume is reflected in wider bid/ask spread.
     
  8. "I am learning option trade. My question is: If a stock option only has less than a hundred of open interests, and if I buy 5 contracts of Feb 2010 put and the stock price is moving lower, can I always close (sell) my put position at any time? Or do I have to exercise the option because no body wants to buy my put?"

    The answer is yes you can always close the position. As a buyer of options you have the right but not the obligation to exercise the puts. You need to understand this well if you trade options. The issue as the other posters pointed out is the spread, the difference between where you can buy and sell will kill you.

    Here is a look at at the money options on brk.b. The 3300 put strike is 30.80 bid and 50.40 ask. If you bought 1 put and needed to sell right away it would cost you two grand to exit the position. I would recommend QQQQ if you want liquid options that are relatively "cheap" . You need to understand your obligations to exercise or not. Good trading.
     
  9. 1) You can always sell your option - unless it is so worthless that there are no bids.

    2) Yes, you can close your put (by selling) at any time - as long as it is before expiration

    3) DO NOT EXERCISE. The reasons can get complicated, but as an individual investor, it's likely you will go your entire lifetime and never exercise an option. It is much better to sell them.

    4) 'I want to buy option instead of stock'

    That statement is frightening.

    If you want to buy PUT options, then you would NEVER consider buying stock.
    Are you certain you know the difference between a put and a call?

    5) It is VERY difficult to make money when buying options. Please be certain you understand what you are doing before placing your money at risk.

    Mark
    http://blog.mdwoptions.com
     
  10. breeze

    breeze

    Thanks for the attached picture. That explains very well what's the problem in the thinly traded options. I did not know the spread can be so big in option.
     
    #10     Jan 2, 2010