Options price imputation when Bid/Ask spread is wide

TigerBalm said:
Let's say I'm Short VXX, and I want to hedge my ass by being Long an OTM VXX Call. Then?

Or if I invested 25% of my life savings in some hot stock and am butt-scared that it may turn out to be Enron, and want to put on a monthly Collar...Then?

Anyway, my main point is about illiquidity being at them OTM strikes and / or bad data. My trading ideas are often not that good. :)
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Even if those events happened, the hedges that far OTM may not perform the way you are expecting.
 
Regarding liquidity:

Unless you are trading millions of notional (5MM+) of options, liquidity should not really be a factor. When I trade < 1MM notional I generally get filled just outside mid market. When I trade much larger: on the bid or through it based on the market and penny pricing.

This is true for all options and liquidity. In options liquidity is much better than the screens state.
 
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