1
$\begingroup$

I am trying to understand which of the options have the most demand, and found this discussion here. The arguments presented are as follows:

  1. ATM is more liquidly traded than ITM/OTM because they are easiest to obtain gamma/vega exposure at lowest bid-ask spreads.

  2. ITM/OTM are more liquidly traded than ATM because OMMs typically look at volatility (instead of underlying) characteristics and ITM/OTM have less vol-sensitivity than ATM.

Both are incredibly convincing but contradictory, could someone shed some light on this?

$\endgroup$
2
  • $\begingroup$ The answer may depend on which underlying you are talking about $\endgroup$
    – dm63
    Aug 7, 2022 at 20:48
  • $\begingroup$ In the title, I think you mean “option liquidity” and not “option demand”. Demand is not an observable quantity but a function of price. $\endgroup$
    – Kevin
    Aug 7, 2022 at 21:17

0

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.