How to Filter Option Positions for Minimum Volume

Liquidity is a crucial factor when entering and exiting option positions quickly and cost-effectively. Avoid trading illiquid options with this decision recipe that filters for minimum volume.
Kirk Du Plessis
Jun 16, 2021

Liquidity is a key factor for getting into and out of options positions quickly and effectively. The best way to evaluate an option’s liquidity is volume. But checking the daily volume for every option leg in all your positions is not an efficient use of your time. Don’t worry; there is a decision recipe that will handle the work for you.

Typically, the more volume an option contract has, the tighter the bid-ask spread. But, as we’ve shown in the past, wide bid-ask spreads can be very costly over a long period of time. So, the best way to determine that an option is liquid is to ensure sufficient volume. 

Daily volume for a contract is usually displayed in an option chain. While the information is readily available through your broker platform, it is tedious to check each leg’s volume, especially if you have many multi-leg positions.

Now, you can avoid trading illiquid options by preceding any decision action with a recipe that filters for minimum volume for any option leg in a position. Better yet, you can check the volume for all legs in a multi-leg position. Plus, you can always test the automation to see if current market conditions meet your volume requirement.

Liquidity is a key factor for getting into and out of options positions quickly and effectively. The best way to evaluate an option’s liquidity is volume. But checking the daily volume for every option leg in all your positions is not an efficient use of your time. Don’t worry; there is a decision recipe that will handle the work for you.

Typically, the more volume an option contract has, the tighter the bid-ask spread. But, as we’ve shown in the past, wide bid-ask spreads can be very costly over a long period of time. So, the best way to determine that an option is liquid is to ensure sufficient volume. 

Daily volume for a contract is usually displayed in an option chain. While the information is readily available through your broker platform, it is tedious to check each leg’s volume, especially if you have many multi-leg positions.

Now, you can avoid trading illiquid options by preceding any decision action with a recipe that filters for minimum volume for any option leg in a position. Better yet, you can check the volume for all legs in a multi-leg position. Plus, you can always test the automation to see if current market conditions meet your volume requirement.

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