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What is the liquidity in commodity options?
We can judge liquidity by three criteria, the first is the trading volume of the underlying contract, the second is the trading volume of the option contract, and the third is the spread of the option contract. Market liquidity risk mainly refers to the risk that a position cannot be established or closed at a reasonable price due to the lack of contractual counterparties. What about poor liquidity in commodity options? Can you close your position?

Source Baidu: Caishun Option

What about poor liquidity in commodity options?

There are two kinds of liquidity risks involved in option trading: one is related to a specific product or market, which can be called market liquidity risk; The other is related to the capital adequacy ratio of traders, which can be called capital liquidity risk. The worse the liquidity of the option, the higher the corresponding price. Because there is a big difference between the bid price and the offer price of options with poor trading liquidity, the option liquidity risk needs to pay a high friction cost, and the option liquidity often cannot be closed without an opponent, thus facing greater risks.

Can commodity options's liquidity be closed?

Simply put, liquidation means "buying and selling, selling buy buy". Options with poor liquidity can be held at maturity without risk. Direction of purchase, due to automatically lose all royalties. If you sell it in the right direction, you will get all the royalties when it expires. However, it should be noted that if the option is not liquidated after its expiration, the option will be automatically exercised on the expiration date, the option will be converted into future positions, and the exchange will settle the account for the investor.

Knowledge point: Option liquidation is actually the trading system of option holders. Closing a position is a trader of stock options, who performs reverse operation on the option position he has already held when investing. Forced liquidation is also called forced liquidation, and it is also called being cut/cut/exploded. According to the different subjects of compulsory liquidation, compulsory liquidation can be divided into exchange compulsory liquidation and brokerage compulsory liquidation.