Options liquidity and trading positions larger than the daily volume?

Question

I want to open and close an options contract position that would be larger than the daily volume and open interest for that particular contract and expiration date.

Would my broker or other market makers take the other side of my position near/at the ask? And when closing these positions will they take all the contracts near/at the bid?

I just don't want to be stuck in a position till expiration. I'm not sure if there is some regulation forcing brokers and market makers to fill these kind of positions or if the spread regulations means I can always get filled at the bid/ask no matter the size, in an options contract.

Insight appreciated

Answer 1

You definitely cannot be guaranteed to get the bid or ask if you are selling more than are available/desired at those prices. What prices you do get depends on who is watching that contract and how willing they are to trade with you.

This question is not much different from the question of whether you can easily get into or out of a large position in an illiquid small stock easily. You can get out quickly if you are willing to take pennies on the dollar, or you may get a reasonable price if you take a long time to get out of (or into) your position. You can't normally do both.

In general taking large positions in illiquid assets is not something people want to do without lining up a buyer/seller beforehand. Instead see if you can achieve your objective with liquid investments.

Answer 2

One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE.

Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.