Experienced option traders, did you run into situation not being able to sell your options?

Looking at the OI is usually the first thing any option trader will do.... well thats what I do so I don't run into these kinda situations :p.

I've been trading options for 5 years and never had a problem. I traded the top 10 stock options of Usa, Auz & Germany. Plus I also traded options on the indexes of these countries.... eg : XJO, FESX & SPX (ES). I also traded the FX majors and CL.

That is all, I've been trying to avoid the situation your talking about :).

I've had similiar questions to you regarding this matter so thanks to all for answering!
 
sle said:
If there is no liquidity in the options contract, nothing prevents you from trading delta against it. After all, you are long convexity.
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Thank you for the comments. I learned something today. I was going to ask you to further explain your comment but CyJackX did it for you.

CyJackX said:
You can go flat by trading against the delta by buying/selling options that have the same expiry. What's nice about this is that you also get some flexibility; if the trade looks like it might actually continue, you may still be in the trade.
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Thank you. Very helpful comments.
 
CyJackX said:
A DITM call has a delta of 1, meaning its value changes identically to 100 shares of the underlying.

So, you could short 100 shares, and your gain would be locked in until expiration, no matter what the stock did; everything your call gains or loses is cancelled out by the short stock.

You mentioned 100 shares might be too big of an expense though, so in that case, you could buy a put against the position. This will cost premium, but it will protect your downside while allowing it to continue to upside.
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A question for you: Most of the time things never go all the way to a delta of 1. As things move around, do you have to keep adjusting the delta to stay neutral? For us small retail guys/gals, that can get expensive.
 
I have come to the same conclusion that big players have - you have to be mentally prepared to cover in the underlying product. This means managing your trade size so you can exercise and net the position off. In fact, I have learned that the best strategy is not to go back to the options market if you are long options. The big players simply go to the most liquid market when it's time to lock in profits and that is the underlying. The option market makers will screw you when you go back so why give them the pleasure. They see me once and that is it.

If you try to delta trade your position, you are just getting screwed again when the market is volatile as the market makers wont quote fair prices when they are scared regardless of the tight liquidity of the underlying product.

The time to take profits if long options is when there is extreme volatility and that is the moment when noone will trade with you. This is when the underlying product still has a bid/ask and you locking in profits will be the only brave person quoting a price for a margin call on the other side.

Boeing - Unexpected Event:

I can share an example that happened a few years ago which is a real trade. There was a rumor on Twitter that an airplane caught fire at Heathrow and shut the airport down. I quickly checked what make was the plane and it was Boeing. The stock was trading at a new 52 week high and options expired that day. I bought puts on the stock in what was illiquid options and as the stock plunged, the volume in the options exploded and so did the spreads. The different strikes went from o volume to 5,000 or 10,000 contracts at each strike with bid/ask spreads as wide as $2 dollars. The stock finally stabilized at lower levels and all the previous OTM options went up by around 10x or more in an hour. I watched the volume to see when other people would start liquidating but for the rest of the day the volume was static and then all these options simply expired deep in the money. Where did all these people go with their 10,000+ ITM put options - why didnt they just go back in and take profits? My guess is that they knew it would be impossible to get a fair market and just went to the stock. The market impact is smaller and they end up paying much less in commissions as stock is a fixed commission and brokers charge $15/strike to exercise regardless the number of options/shares.
 
Sorry, you want to early ex your options as a way to take profit? That instead of covering delta? Mind explaining why so and why do you think that's what "big players" do?
 
Big positions cant get fair pricing in illiquid options so use the liquid underlying. Deep in the money options have no time premium left so better execution in the underlying.
If you watch specific options open interest, you can track what the big players are doing on the final day of expiration in terms of liquidation. If open interest is 10,000 on final day and zero volume then you know they exercised or options worthless.

If you take profits in underlying and you pick the right spot, the market may go all the way back through your original strike and you have unlimited gains again in the other direction which is like being long another option...
Long Option/Exit Underlying = Long Option Reversal.
You dont have to exercise the option early if you have capital to pick up. You can now play the market with the underlying product but enjoy the benefit of limited loss by keeping the long option and get better execution including over night. On expiry, you dont have to do anything as positions will net off over the weekend if option in the money. The capital requirement is significantly less as you have limited loss so can be done with small capital as well.
 
There has to be open interest on both buy and sell side. If you're sell to close there must be buy open interest, sell at market will be filled.
 
ironchef said:
A question for you: Most of the time things never go all the way to a delta of 1. As things move around, do you have to keep adjusting the delta to stay neutral? For us small retail guys/gals, that can get expensive.
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¯\_(ツ)_/¯

Trading ain't cheap!
 
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My preference is to trade static delta and Long vol. if not a market maker, my preference is to be Long options with no margin calls. Lock in profits with most liquid contract.

Open interest can be any combination of open/close positions. But if one big player did a trade with market makers and then closed with the same market makers then no more open interest.
This can be tracked in illiquid strikes with big blocks traded. Or simply watch the volume cause if they never trade again then you know they didn't cover.
 
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