executing in extremly illiquid stock options

[earth_imperator]

Entry: do in multiple 'tranches' and always use MidPrice (of the others in the book), ie. average down the entry price...
Exit: liquidity (volume), and volatility, does not play a role if you simply let the option just expire...

 

[2rosy]

A question to the more experienced option traders:

It's mostly not advisable to trade illquid options - I know. Let's leave that general notion aside for a minute.

I am looking at a stock that is in very unique environment:
Conditional on a certain event happening in the coming 1-3 month the stock is likely going to fall > 50% or rise > 100-200%.
I am sure the move is going to be that extreme and I want to bet on the possibility of a rising price.

The problem is the extreme illquidity of the options.

My question is how could I get a position as cheap as possible?

I would go for the strike at $23 by putting in buy orders at $ 0.30 and steadily increasing the price hoping to get a fill < $ 4.70. It's probably unlikely to get a better fill.
(Screenshot is after hours but there is 0 open interest during market hours, too.)

Is there a better way to do it?
Your advice is very much appreciated.

pick up the phone and call around for quotes or have your broker do it.

 

[ironchef]

I trade options directionally, mostly thinly traded options. Painful experience is regularly trading them was very unprofitable, just couldn't beat the MM and professional option traders. But if I pick and choose my targets carefully, it is quite profitable.

I waited for a down day and usually could get a mid when I bought calls. To exit I waited for an up day to get out. However, when the option went D-OTM, even with lots of time remaining, usually it became a total write-off.

 

[delta_1]

That's useful insight! Thank you!

When the stock has a very illiquid day the spread can be up to 10% yet the bid ask spread on the options bid $2 ask $5 turns out to be 150% of the bid price.
Obviously this should only be traded if the potential gain vastly outweighs the risk.
Knowledge about how to get in and out seems to be increadibly valuable.

I will follow the advice I got in this thread:
1. put in a long order with a very cheap option price hoping for a short term downward price swing
2. if it doesn't go long at the bid price and increase steadily trying to achieve mid price. That would amount to > 30% in cost savings

 

[newwurldmn]

That's useful insight! Thank you!

When the stock has a very illiquid day the spread can be up to 10% yet the bid ask spread on the options bid $2 ask $5 turns out to be 150% of the bid price.
Obviously this should only be traded if the potential gain vastly outweighs the risk.
Knowledge about how to get in and out seems to be increadibly valuable.

I will follow the advice I got in this thread:
1. put in a long order with a very cheap option price hoping for a short term downward price swing
2. if it doesn't go long at the bid price and increase steadily trying to achieve mid price. That would amount to > 30% in cost savings

your issue isn’t delta. It’s the market makers willingness to even trade at all. The market is 30percent of the spot price. Normally that’s a bad sign. It also means once you are in, there’s no getting out.

 

[ironchef]

your issue isn’t delta. It’s the market makers willingness to even trade at all. The market is 30percent of the spot price. Normally that’s a bad sign. It also means once you are in, there’s no getting out.

Great insights, @newwurldmn. Two ways to get out: When D-ITM or worthless.

 

[delta_1]

Great insights, @newwurldmn. Two ways to get out: When D-ITM or worthless.

your issue isn’t delta. It’s the market makers willingness to even trade at all. The market is 30percent of the spot price. Normally that’s a bad sign. It also means once you are in, there’s no getting out.

I'm not sure I understand:
If I see an ask at $5 I would get the call for $5 using a market order, correct?
The question if I could get it cheaper by using limit orders at mid price.
Let's say the price rises sharply: I would probably not get out as the bid price on deep in the money implies a sale below the stock price. So I could wait until expiry or execute the call.

 

[kmiklas]

A question to the more experienced option traders:

It's mostly not advisable to trade illquid options - I know. Let's leave that general notion aside for a minute.

I am looking at a stock that is in very unique environment:
Conditional on a certain event happening in the coming 1-3 month the stock is likely going to fall > 50% or rise > 100-200%.
I am sure the move is going to be that extreme and I want to bet on the possibility of a rising price.

The problem is the extreme illquidity of the options.

My question is how could I get a position as cheap as possible?

I would go for the strike at $23 by putting in buy orders at $ 0.30 and steadily increasing the price hoping to get a fill < $ 4.70. It's probably unlikely to get a better fill.
(Screenshot is after hours but there is 0 open interest during market hours, too.)

Is there a better way to do it?
Your advice is very much appreciated.

You can chat it up on different trading forums… create a bit of a buzz, and draw in some buyers and sellers.

Kinda like how Bloomberg news is always squawking about $TSLA.

(Is $TSLA blasphemy permitted on the forum?)

 

[ETJ]

Put yourself in the shoes of the MMs.

How liquid and wide is the underlying?
How many venues does it trade on and will your broker allow you to move it?
Open interest and at what strikes does reside? How close to expiration - the closer the more likely the hedge will be in the stock.
If it's long would it make more sense to exercise or take the risk of waiting for autoex?
It is rare for the option to be more liquid than the stock - but those options generally list all of the current 16 venues.

 

[maxinger]

Trading illiquid option (and futures and stocks ...) is like a fish that managed to get in the trap.
Once in, there is no way out but death.