What happens if no one buys your option and How to correctly overcome the situation?

If you happen to be an option seller, one of the most important questions you may ask yourself is what happens if no one buys your option.

This is an important matter we need to discuss because this situation can happen and if that is the case, we should be aware of the different possibilities we have to overcome it without problems.

Here we are going to discuss the different scenarios we could meet in case there were no buyers for our options calls or puts.

There are more volume of option buyers than option sellers

Keep in mind that the general public would rather buy options than sell them because they do not want to be exposed to a theoretical unlimited risk, even though their probability of profiting is reduced.

That is the reason why you will typically find that there is more volume on the buying side compared to the selling side of the option contract.

However, there are some situations in which we may not find any buyer…

Our sold option is Deep Out of The Money

Let us suppose we have sold an Out of the Money call option at a strike price of $100 with 30 days to expiration. Over time, the underlying stock has been decreasing until it reached $90 when only 4 days were remaining to the expiration.

In these cases, if we wanted to exit the trade, the most likely is that it will be impossible or very, very difficult to do. And the reason is the value of this option is very near to zero! Take a look at a screenshot of our Advanced Option Calculator here…

As you can see, when we sold the call option, we received $348, and if we wanted to buy it back, we will have to pay $0. In other words, there are no buyers for this call option for the simple fact that it is almost impossible for the underlying to go $100 in just the 4 remaining days.

What happens if no one buys your option when this is Deep Out of the Money?

The option will simply disappear from our portfolio when the expiration date arrives, and we will not have to do anything else. We just simply wait.

However, if you do not feel comfortable with this, you can always place a limit order to pay $1 in case there is a spike in the underlying, so you can exit the trade in case there were buyers.

Our sold option is Deep In The Money

If the underlying stock goes against our expectations, and the option becomes very Deep In The Money, there is a chance no one buys our option, even if we want to exit the trade.

Even when the vast majority of traders tend to buy options, they will typically buy At the Money or Out of the Money options because they are cheaper than the In the Money options, even though the latter has more probability of profiting.

This could result in a lack of options volume in case we wanted to exit the trade.

What happens if no one buys your option when this is Deep Out of the Money?

There are two things we can do.

The first one is issuing a market order if we are desperate to exit the trade, and hope for the loss not to be as larger as we expected because of the bid-ask spread.

The second one is just to wait until a buyer decides to exercise the option, so we end up being assigned. In this case, we would only need to close the 100 shares at the strike price we have received and count the trade as a loss.

The options chains we are treating have no volume

Some options chains lack volume on either side of the option contract and that is another reason why we could end up lacking both buyers and sellers in the trade.

We highly recommend you avoid any option chain whose open interest and volume are under the 100 contracts exchanged.

Some tips to find more volume and more buyers

One of the tricks we typically use to find more buyers in our selling strategies is to look for those strike prices that have a rounded number.

For example, in an option chain like the SPY, you will typically find higher volume every $5. Psychologically, people tend to focus on numbers that are rounder compared to those that are not.

Note that in the previous option chain, you will find more volume and open interest in those strike prices that are multiples of $5. In those that are not, there is significantly less volume.

That is another way to prevent the lack of buyers.

If you want to know more about volume and open interest and how it affects the Black-Scholes model, we recommend you to take a look at this article here to learn more.

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