Illiquid Option

DEFINITION of 'Illiquid Option'

An option contract that cannot be sold for cash quickly at the prevailing market price. Illiquid options have very low or no open interest.

BREAKING DOWN 'Illiquid Option'

Most options are illiquid when they are far away from their expiration dates. If you're holding an illiquid option, you will usually notice a very large bid-ask spread on the contract. This is because there are not enough buyers to accommodate those wanting to sell.

Unfortunately, if you are trying to sell an illiquid option, there is a good chance you'll be selling at a discount, if at all.

RELATED TERMS
  1. Exchange-Traded Option

    An option traded on a regulated exchange where the terms of each ...
  2. Far Option

    The option with the longer time to expiration in a calendar option ...
  3. Sell To Close

    In options trading, an order to sell an option that you own and ...
  4. Forex Option & Currency Trading ...

    A security that allows currency traders to realize gains without ...
  5. Commoditization

    1. A situation when illiquid financial contracts are changed ...
  6. Back Fee

    A payment made to the writer of a compound option in the case ...
Related Articles
  1. Investing Basics

    When Introducing Illiquidity to Your Portfolio Makes Sense

    Find out when you should consider adding illiquid investments to your portfolio, such as real estate or locked-up investment funds.
  2. Options & Futures

    Types of Options

    There are many different types of options. In addition to general put options and call option, we will discuss 13 different types of options. Some of these option types are better suited to day ...
  3. Options & Futures

    Exploring European Options

    The ability to exercise only on the expiration date is what sets these options apart.
  4. Options & Futures

    20 Investments: Options (Stocks)

    What Is It? Options are a privilege sold by one party to another that offers the buyer the right to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time ...
  5. Options & Futures

    A Newbie's Guide To Reading An Options Chain

    Learning to understand the language of options chains will help you become a more informed trader.
  6. Options & Futures

    Getting Started In Forex Options

    Stocks are not the only securities underlying options. Learn how to use FOREX options for profit and hedging.
  7. Stock Analysis

    How To Read An Options Table

    With more information available and the ability to quickly trade options online, investors are becoming savvier with using options to speculate, hedge and create their own financial strategies ...
  8. Investing

    The Easiest Way I Know To Make Triple-Digit Profits

    Over the past few decades, we've seen many advances in how the stock market functions. Today, exchanges and brokerage houses exist almost entirely online, and everyone is competing for microseconds ...
  9. Options Traders

    An options trader is anyone who buys and sells options in the capital market. As options trading is most commonly conducted through online option trading brokers, it is also commonly known as ...
  10. Options & Futures

    Exploring The World Of Exotic Options

    Exotic options provide investors with new alternatives to manage their portfolio risks and speculate on various market opportunities. The pricing for such instruments is considerably complex, ...
RELATED FAQS
  1. What is the difference between open interest and volume?

    Learn more about options, what options' volume and open interest are and the difference between volume and open interest ... Read Answer >>
  2. How do I measure option liquidity?

    An option is a financial instrument that gives the holder the right to purchase shares in a company at a certain set price ... Read Answer >>
  3. When holding an option through expiration date, are you automatically paid any profits, ...

    Holding an option through the expiration date without selling does not automatically guarantee you profits, but it might ... Read Answer >>
  4. What do the phrases "sell to open", "buy to close", "buy to open", and "sell to close" ...

    The confusing terminology mentioned in the question deals with entering and exiting option orders. In review, there are two ... Read Answer >>
  5. Is it possible to trade forex options?

    Yes. Options are available for trading in almost every type of investment that trades in a market. Most investors are familiar ... Read Answer >>
  6. Do you have to be an expert investor to trade put options?

    Learn about investing in put options and the associated risks. Explore how options can provide risk, which is precisely defined ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center