An option on a single stock (AAPL, MSFT, TSLA). American-style, physically settled. Liquidity varies dramatically — mega-cap stocks have tight spreads while small-caps can have $0.50+ spreads.
⚡ KEY TAKEAWAY: Equity options give you stock-specific exposure. Premium sellers should stick to the most liquid names (top 50-100 by options volume) where bid-ask spreads are manageable.
Why It Matters
Equity options on single stocks give you name-specific exposure. Premium sellers use them to harvest IV on individual names where VRP is positive and the stock setup is favorable.
How It Works
Options on individual stocks (AAPL, MSFT, TSLA). American-style, physically settled. Liquidity varies enormously: mega-cap = penny spreads, small-cap = $0.50+ spreads. IV reflects stock-specific risk, not just market risk.
Example
AAPL put: bid $3.00, ask $3.05 ($0.05 spread, very liquid). A $50 biotech put: bid $1.20, ask $1.80 ($0.60 spread, illiquid). The AAPL trade is practical; the biotech trade loses 50% of premium to the spread.
Common Mistakes
Trading options on stocks outside the top 50-100 by volume. Once you leave mega-cap territory, spreads widen dramatically. A $0.50 spread on a $2 option means you lose 25% to execution before the trade even starts.
An option on a single stock (AAPL, MSFT, TSLA). American-style, physically settled. Liquidity varies dramatically — mega-cap stocks have tight spreads while small-caps can have $0.50+ spreads.
Why does Equity Option matter for premium sellers?
Equity options give you stock-specific exposure. Premium sellers should stick to the most liquid names (top 50-100 by options volume) where bid-ask spreads are manageable.
How does Equity Option work?
Options on individual stocks (AAPL, MSFT, TSLA). American-style, physically settled. Liquidity varies enormously: mega-cap = penny spreads, small-cap = $0.50+ spreads. IV reflects stock-specific risk, not just market risk.
What are common mistakes with Equity Option?
Trading options on stocks outside the top 50-100 by volume. Once you leave mega-cap territory, spreads widen dramatically. A $0.50 spread on a $2 option means you lose 25% to execution before the trade even starts.
