Options: How liquid is the options market for closing or trading out of positions?

Just wondering how easy it is to get out of positions before the expiration date, and if you can still get the expected price for it, (even if has already amounted a large paper gain or loss). Thanks!

If you are talking about currency or futures options, I am not sure.

If you are talking about stocks or stock indexes, they are all liquid but some are more liquid than others. Every option market maker for a stock has to give a bid quote and an ask quote for every option on that stock, and they have to honor an order up to a specific number of contracts at those quotes. The exact number of contracts depends on the underlying, but it is always at least 20 contracts.

So, there will always be bid and ask quotes, although if the option is far enough out of the money the bid quote may be zero. That is not the issue. The issue is the size of the spread between the bid and the ask quotes. Every exchange has rules about how large that spread can be but every exchange makes it possible to stretch that limit at times.

Options on popular stock, such as INTC, tend to have small bid-ask spreads. Options that are listed on multiple exchanges tend to have smaller bid-ask spreads than those that are not.

If you want an example of some relatively illiquid options look at the options on PNSN. The bid-ask spreads on that stock's options tend to be quite large. If you want to trade options on that stock you almost always want to use limits orders between the bid and the ask quotes.

Also, deep in the money and far out of the money options tend to have larger big-ask spreads than near the money options. Longer term options tend to have larger spreads than nearer term options. Options with more volume will almost always have lower bid-ask spreads. (Warning: Do not trust the volume figures from Yahoo option quotes. If you want a free delayed quote alternative source I suggest you use

http://www.cboe.com/DelayedQuote/QuoteTa...

instead.)