I am a novice in Options, just started learning. I know only Equity right now.
I dont want to get stuck with contracts in my hand in illiquid options. So how to guage liquidity?
Is it OPENINTEREST or No of CONTRACTS traded? Which of these two is more important when it comes to liquidity ?
I should be able to get in and out of positions in a 3-5-7 days!!!
Thank you.
You need to look at both OI and Traded volume. Liquidity of options drop significantly as soon it become deep in the money or deep out of the money. So even though a contract might be liquid when you are buying them, it might suddenly drop off if the stock price moves significantly far from the strike price of the option you are buying.
Best to stick to stocks which have high liquidity across different strike prices.