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Options Jive

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Components of Liquidity

Options Jive

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

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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