Personal Finance & Money Asked by ritikaadit2 on August 2, 2021
Why there is not much Options volume or open interest for few big companies? example. COST (Costco), UPS, MCK don’t have much volume/open interest when I look at option chain. Is is advisable to stay away from these options of these companies?
Why there is not much Options volume or open interest for few big companies? example. COST (Costco), UPS, MCK don't have much volume/open interest when I look at option chain.
There are are few reasons why some big companies don't have much volume/open interest.
Story stocks attract traders and investors (TSLA, FAANG stocks, etc.). Higher priced non story stocks do not attract option traders.
Stocks that have low volatility tend to have low implied volatility options (low option premiums) and that doesn't attract traders either. MCK is a good example of this. It traded in about a 15 point range for over 5 months. UPS has traded in a 20 point range for the past 5 months.
Non story stocks with weekly options tend to have higher open interest in the earlier weekly expirations and the earlier monthly expirations. The other expirations tend to be more illiquid.
Is is advisable to stay away from these options of these companies?
The answer depends on whether you need liquidity. A trader does. An investor may not need it. For example, if you're selling short puts to acquire a stock at a specific lower price (investor), for the most part, only the option's price and the net purchase price matter because buying the stock is the objective. The same holds true for selling a stock at a target sell price via a covered call.
Answered by Bob Baerker on August 2, 2021
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