i've heard several ways to put a metric on liquidity of options.. obviously liquidity isn't a constant.. things like the Bid/Asks spread, liquidity of the underlying.. Trying to find a way to parameterize "liquidty" for scans... instead of contracts traded.. would some average of total dollar amount traded in some front part of the term structure work? does open interest say something as well?
I would look at the following metrics when quantifying "liquidity" in listed options:
Most of the points above pertain to the fact that a lot of liquidity behind a contract is not shown on the screen, it shows however in the participation rate and dynamics of market makers and those who qualify for waivers of cancel/modify charges.
As an aside, I would not look at liquidity in the underlying. The underlying may be highly liquid without much interest in the options.
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