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Price Discovery in Iliiquid Stocks

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Before we can trade something, we’ve got to know what it’s worth. When we trade the most liquid stocks in the world, like SPY or AAPL, this is easy to do because the spreads are very tight. Thus, there isn’t a large discrepancy between the buyers and the sellers in the marketplace. However, when we trade less liquid stocks, like AMZN or CMG, the spreads are much wider and finding the fair value is not as obvious. So, what can we do? Mike, from Everyday Trader, joins our discussion to help us answer that very question.

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