1

I'm looking at an option and it has a lot of bids and asks, but zero volume. Does this mean that the market can't decided on the price of the premium because the stock itself is moving? Just curious what this means or why this occurs.

2

I assume that by zero volume you mean that no contracts have been traded today rather than there is zero Open Interest.

If no contracts have traded then there is no interest in the options so far. It's likely that the options are illiquid and few trade on a daily basis. It has nothing to do with "the stock itself is moving". If the stock was moving up or down significantly, there would likely be some contracts trading.

You mentioned that you see a lot of bids and asks. The market isn't having any trouble deciding on the price of the premium. Those B/A quotes are the current collective opinion of what the option prices should be.

  • 1
    It would be good to note that the bid and ask are likely from a market maker who is obligated to quote the option -- signaled by round-number quantities and a relatively fixed (and wide) spread that is maintained as the option moves up and down. If the bid and ask were driven mainly by organic orders from traders, then some transactions would likely be occurring. So it's not so much a "collective opinion" as perhaps one firm's pricing model, with the wide spread preventing arbitrage of any small mispricing. – nanoman Jan 10 at 18:06
  • Interesting point. When professional options traders quote prices, we use units of Vol rather than Dollars/Pounds/etc. Precisely because the dollar value moves with the underlying so much. – Aron Jan 13 at 8:55
  • "Collective opinion" means all bids and asks on the order book, regardless of whether from organic orders from traders or from a market maker obligated to quote the option - or from both. Wide spreads are due to lack of interest in an option or security. Organic traders may be the bid and ask without trades occurring.With illiquid equities, there have been times where for long periods of time, I have been the bid and the ask price as well as he entire size on both sides and no trades execute at all. If the MM or any other trader wants in, it's only a penny to become the center of the pack. – Bob Baerker Jan 13 at 12:24

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.