You noted there were only 70 open interests on JNPR February 120 calls; thus, it might be harder to trade the options. Can you explain this? (December 26, 2000)
We like to have at least 100 open interests on options that we trade. The reason is better liquidity, i.e., more trades, and thus the better chance that we may be executed on stop orders that we have in place. Let's say we have an option trading at $18 and want to place a stop loss at $15. We put a stop limit order in a $15. If the option is not traded heavily, the option could drop right past the $15 bid we have and be missed. Indeed, the bid could actually drop in price to our $15 bid, but if there are no trades at that point the stop order would not be 'activated' by some systems. On this, the key is to check with your broker and ask about how the ECN that is being used handles stop orders of all types. Things are getting much better, but as recently as a month ago we had some stop orders missed on options that were not very liquid, i.e., less than 100 open interests.
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