Hi all, first time posting here. I've been learning about options for a few months and planning to start paper trading soon. Besides learning about the actual workings of derivatives, I've been learning up on the strategy that TastyTrade and OptionsAlpha promote (45 DTE, short 30 delta call/put or 16 delta strangle/condor, IV is mean reverting, IV usually is overinflated, etc). I think I have a solid understanding of the fundamentals and mechanics of options but there are a few things that haven't clicked for me yet.
Sometimes I'll browse the tasty watchlists just to look at trades and familiarize myself with what's out there. Often even if I look at underlyings with great liquidity, I find the liquidity and bid/ask spread of the options seem bad. For example, today (May 21) I looked at EWZ, M, NVDA, SPY, QQQ, BABA to sell 38 DTE puts (closest available expiry to 45) mostly looking around the 1 SD mark.
-Macy's (M): highest volume that I see is 10
-Nvidia (NVDA): volume is 100 right at the 1SD strike, most nearby contracts have volume below 50
-Brazil ETF (EWZ): a lot of contracts have 0 volume, one has volume over 100
-NASDAQ (QQQ): most contracts have volume below 100
-Alibaba (BABA): volumes are below 100, many are single digit
-S&P500 (SPY): several volumes between 100 and 1K, one strike with volume above 1K, still several with volume less than 100
Are my expectations just out of line, and this is normal? Is the "Volume" in units of 1K or 1M or something? Is this actually the daily open interest and not volume?
For reference, I'm using the TastyTrade app. Was going to post screenshots but the sub rules prohibit it.
Hopefully this is a sensible post. Thanks for any responses and advice.
Am I misunderstanding option contract volume?
byu/89Formula inoptions
Posted by 89Formula
2 Comments
Monthly options generally have more volume than the weeklies. Compare the volume and open interest of what you saw (June 28 38 DTE) with the June 21 (31 DTE) monthly expiry and you’ll see the volume that you’re expecting.
Contracts are usually to buy/sell 100 units of the underlying. So while it looks like 1300 contracts traded on NVDA looks low, that’s just because oh the leverage. ATM Call might be 38$… Which is 3800$ spent. The higher the price of the contract, remember it’s 100x (in most cases).
So that can be $1.4m traded just at that single strike… At that single expiration… On that specific day… Just a single call option.
You also have the strikes above and below. You have the puts. You have every expiry before or after. So you can see how we can hide alot of money, in “low volume”. Also the further out of the money you get, the less liquidity.
. Liquidity also favors near term expires of long term expires.