What do you consider to be sufficient open interests for an option? (December 18, 2000)

  We like to see 100 open interests or more. That gives more liquidity in the option and that gives us more options. First, it allows us to perhaps work the spread better to get a better trade. Second, and importantly, it means there are more trades in the option, and that gives us better odds at being executed when we use stop losses on an option position. For example, a stop limit order, i.e., a stop order at a specific price you want to sell at or better only, is not triggered until there is a trade at that specific price. Thus, the option price can move past you without being triggered. On a stop loss order, if the option moves below your stop price without being traded but then trades at a lower price, you are taken out at that lower price. Thus you want more open interests as that means more trades and a better chance you get hit on your stop limit order.

Previous Page Next Page

Return to Table of Contents

Legal Disclaimer