I’ve been trading Nifty/Bank Nifty and also some times stock options. The indices are mostly liquid, but ATM Calls and Puts or even 1 strike above or below ATM on large stocks even like Trent seem to have a spread of over 4 - 5 Rs at times.
I figure that sometimes there is liquidity in these stocks and sometimes there isn’t. My question is
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What kind of sanity checks should someone have while trading options and what kind of bid-ask spreads do you guys consider if you are option buyers. For ex in stocks, say the spread is more than 3 Rs - do you avoid? Any rules or heuristics around this would help me think this through better
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Sometimes in a matter of minutes if a breakout happens previously illiquid options become liquid - so I am also not willing to completely ignore certain strike prices - curious how you folks manage this
Any practical advice will be appreciated! Thanks