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Liquidity of the CBOE Equity Options

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  • Vijh, Anand M

Abstract

The author examines the CBOE option market depth and bid-ask spreads. Absence of price effects surrounding large option trades suggests excellent market depth. However, bid-ask spreads for the CBOE options and the NYSE stocks are nearly equal, even though an average option is equivalent to less than half a stock plus borrowing. The author explains this trade-off between market depth and bid-ask spreads on the CBOE and the NYSE by differences in market mechanisms. The author also shows that the adverse-selection component of the option spread, which measures the extent of information-related trading on the CBOE, is very small. Copyright 1990 by American Finance Association.

Suggested Citation

  • Vijh, Anand M, 1990. "Liquidity of the CBOE Equity Options," Journal of Finance, American Finance Association, vol. 45(4), pages 1157-1179, September.
    • Handle: RePEc:bla:jfinan:v:45:y:1990:i:4:p:1157-79
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