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. Illiquid

    The state of a security or other asset that cannot easily be ...
  2. Listed Option

    An option that is sold on a registered exchange, such as the ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) ...
  4. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  5. European Option

    An option that can only be exercised at the end of its life, ...
  6. Far Option

    The option with the longer time to expiration in a calendar option ...
Related Articles
  1. Managing Wealth

    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. Trading

    Google Stock Too Expensive For You? Try Options

    Investing in Google (GOOG) generally requires you to pay the price of the share multiplied by the number of shares bought. An alternative using lesser capital involves using options.
  3. Managing Wealth

    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 ...
  4. Investing

    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.
  5. Investing

    Options Basics: How To Read An Options Table

    Sponsor: At last, an easy way to predict stock trends – get your FREE copy of 5 Chart Patterns You Need to Know. By Jay Kaeppel As more and more traders have learned of the multitude of ...
  6. Trading

    Options Hazards That Can Bruise Your Portfolio

    Learn the top three risks and how they can affect you on either side of an options trade.
  7. Markets

    How to Trade Options on Government Bonds

    A look at trading options on debt instruments, like U.S. Treasury bonds and other government securities.
  8. Trading

    Options Pricing

    Options are valued in a variety of different ways. Learn about how options are priced with this tutorial.
  9. Trading

    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. Trading

    Give Yourself More Options With Weekly and Quarterly Options

    Weekly and quarterly options were introduced to give a greater choice of option expirations to investors, and enable them to trade more efficiently.
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 can derivatives be used to earn income?

    Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center