The Dangers of Illiquid Options β And How to Avoid Them
Dec 25, 2025Most beginners assume that if a stock is popular, its options must be liquid. That’s not always true.
An illiquid option is one that has:
- No open interest (no existing contracts held)
- No volume (no one trading it today)
- Wide bid-ask spreads (you could lose money just entering)
Even big names like IBM or Walgreens can have options strikes — especially far out-of-the-money — that barely trade.
For example:
- Bid: $0.10
- Ask: $1.00
If you’re not careful, you could enter a trade where you're down 90% the moment it fills.
That’s why traders should:
- Stick with strikes that have decent open interest
- Avoid illiquid expirations unless they understand the risk
- Always use limit orders
Knowing how to identify and avoid illiquid options will save you money and frustration — and help you trade smarter.