Jhaughey,
Thank you for the info. It isn't particularly simple locating option volume info from the various exchanges. However, perseverance produced the following data for 28 Sep:
CME: S&P 500 (a bit vague, two sets of near identical figures (major and mini?)): 42,971 and 41,950
CBOE: S&P 500 - 231,000; NASDAQ 100 - 45,000; Russell 2000 - 120,000 (couldn't find any underlying future for this).
Grant.
Thank you for the info. It isn't particularly simple locating option volume info from the various exchanges. However, perseverance produced the following data for 28 Sep:
CME: S&P 500 (a bit vague, two sets of near identical figures (major and mini?)): 42,971 and 41,950
CBOE: S&P 500 - 231,000; NASDAQ 100 - 45,000; Russell 2000 - 120,000 (couldn't find any underlying future for this).
Grant.
jasonnoguchi
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Just a curious question... how is this information of any help?
roguetrader
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Hi Jason, as someone who trades options very infrequently, and even then restricted to manily one underlying, I find your question much more curious than his as it seems to suggest that liqudity is of no interest when considering options, whilst I imagine it is of little importance if one is buying options for a large move that can result in either selling or exercising, I would have thought it would be of some use in selling on an option position after a small move.
jasonnoguchi
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If it is option liquidity you are concerned with, then again, you are going down the wrong direction. 🙂 Option volume DO NOT solely govern or determine the liquidity of an option contract. Surprised? There are currently no emphirical method to calculate option liquidity. Option liquidity is largely governed by 3 main factors : Volume of Option contract in question, Open interest of option contract in question and Volume of the underlying stock in question.
In order of importance :
1. Volume of Underlying stock. Options of heavily traded stocks are very liquid even if you are taking a far ITM or OTM option that has very little volume.
2. Open Interest. The more open interest, the more that contract has been going around and therefore indicates a liquid market.
3. Volume of Option Contract. While a heavily traded option contract does indicate liquidity, an option contract that has very little volume can be equally liquid if the above 2 conditions are met.
A tight bid ask spread also suggests liquidity but that is not a reliable method as bid ask spreads can suddenly change without warning. Options on very illiquid stocks with very low open interest can show a bid ask spread of as tight as $0.10 intraday when there are people queuing for a price $0.10 below the prevailing asking price, thereby giving a false sense of a tight bid ask spread. Right after that person closes that order, the bid ask spread can suddenly shoot open to as wide as $1.00.
Hope you now have a better idea how option works.
.
In order of importance :
1. Volume of Underlying stock. Options of heavily traded stocks are very liquid even if you are taking a far ITM or OTM option that has very little volume.
2. Open Interest. The more open interest, the more that contract has been going around and therefore indicates a liquid market.
3. Volume of Option Contract. While a heavily traded option contract does indicate liquidity, an option contract that has very little volume can be equally liquid if the above 2 conditions are met.
A tight bid ask spread also suggests liquidity but that is not a reliable method as bid ask spreads can suddenly change without warning. Options on very illiquid stocks with very low open interest can show a bid ask spread of as tight as $0.10 intraday when there are people queuing for a price $0.10 below the prevailing asking price, thereby giving a false sense of a tight bid ask spread. Right after that person closes that order, the bid ask spread can suddenly shoot open to as wide as $1.00.
Hope you now have a better idea how option works.
.
Jason,
Thank you for the reply.
To me, high volume equals liquidity. While an absence of volume may not necessarily indicate a lack of liquidity, high volume certainly implies liquidity.
High volume stocks do not necessarily translate into high volume options. This is certainly the case with index options, especially where the underlying future is a “mini”. For example, the e-mini S&P – magnificent volume on the future, negligible on the options.
Open Interest. Partly correct. Futures volume for example can exceed open interest. Therefore, open interest can actually understate volume/liquidity and therefore, may not be as reliable as you infer. An extreme example is the Bund. Volume can exceed open interest, open interest can exceed deliverable bunds .
I agree that low volume/high open interest indicates liquidity but where an option hasn’t traded recently, from where do you derive an implied for a theoretical value, and hence an indication of price?
Hope you now have a better idea how options works.
Grant.
Thank you for the reply.
To me, high volume equals liquidity. While an absence of volume may not necessarily indicate a lack of liquidity, high volume certainly implies liquidity.
High volume stocks do not necessarily translate into high volume options. This is certainly the case with index options, especially where the underlying future is a “mini”. For example, the e-mini S&P – magnificent volume on the future, negligible on the options.
Open Interest. Partly correct. Futures volume for example can exceed open interest. Therefore, open interest can actually understate volume/liquidity and therefore, may not be as reliable as you infer. An extreme example is the Bund. Volume can exceed open interest, open interest can exceed deliverable bunds .
I agree that low volume/high open interest indicates liquidity but where an option hasn’t traded recently, from where do you derive an implied for a theoretical value, and hence an indication of price?
Hope you now have a better idea how options works.
Grant.
