Options liquidation can be costly. How costly?
New model uses open interest and volume data to calculate the expense of selling an options portfolio during times of stress
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The options trading boom shows little sign of fizzling out. Average daily volumes of cleared options are more than double pre-pandemic levels, and continue to rise, according to data from the Options Clearing Corp.
When bets go sour, dealers are sometimes forced to liquidate options portfolios. This process can result in slippage and additional losses due to lack of liquidity. So, firms often hold a liquidity add-on component to the margin or capital requirement, which is meant to cover the
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