Options Jive

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Components of Liquidity

Options Jive

Today, we look at the components of a fair market. What makes one market “fairly” priced compared to another? The answer: Liquidity. Tune in to hear Tom and Tony go through what makes liquid markets!

For one market to be classified as liquid compared to another it needs to have:

  • High Open Interest or Volume (preferred) Across Strikes
  • A Tight Bid-Ask Spread
  • Multiple Expiration Cycles and Varied Strike Selection

If a product has all of these components, then it's definitely something we will look into trading. An easy way to determine if a market is liquid or not is to use the tastytrade liquidity ranking. If it has 4 stars, then there should be little to no problem entering and exiting trades at a fair price.

Tune in to watch Tom and Tony discuss what makes a liquid market and what doesn’t!

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