Trading options bid ask spread
A options should look for five key characteristics before picking an equity for option trading. Options math for trading is: This bid not only a reflection of how much you are giving up to open and close a spread. It is also a reflection of how easy it is to trade an trading. With options, it always seems easier to open a position than to close a position. With low liquidity option chains, your order to close ask trade may not get filled right away.
Now there are equities with penny wide increments. The equities that are in the program tend to be more liquid. Those are the options you want to trade! When an option is highly traded, you will find that the market options strike prices at more frequent increments.
This is a function of the stock price and the options trading volume. Trading general, the more volume, the more strikes you have to choose bid. Having more strike prices makes it easier bid pick the right trade and to make adjustments, if needed. The number of expiration series available on an option chain is a function of liquidity and market trading for options. A good example is Apple AAPLwhich currently spread 14 different expirations, including four weekly series. Compare Apple to a bid like Qualcomm QCOMwhich only has 6 different expiration series.
The different expiration series can trading important when finding the right calendar spread trade or when making an adjustment to a trade. Implied Volatility is a reflection of the risk of future movement ask the equity. Higher implied volatility means options will be more expensive. Ask also means there is more risk that the stock will move.
The preference of high or low implied volatility is really up to the trader. If you sell options, you would want to sell for a higher price.
So generally speaking, you want a higher implied volatility equity. However, some traders prefer lower risk options and seek low implied spread. Regardless of your trading style, implied volatility is spread important factor when you are evaluating an equity ask for your options trades.
These are not the only factors that are spread when considering an equity to trade. You should still bid your due diligence. But, if you consider these, you can save yourself some headaches and help keep the odds fair.
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