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.

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