Liquidity is the measure of ease of entering and exiting a trade at fair and efficient prices.
An option chain with high liquidity will be categorized with the following:
- Low bid-ask spread
- High volume and open interest
- Many expiration cycles
An option chain with low liquidity will be categorized as:
- Wide bid-ask spread
- Little to no volume and/or open interest
- Few expiration cycles
Trading options with high liquidity is the number one most important factor to an option trader's success.