Simply put, liquidity is all about how quickly a trader can buy
or sell something without causing a significant price movement. A liquid market
is one with ready, active buyers and sellers at all times.Here’s another, more mathematically elegant way to think about
it: Liquidity refers to the probability that the next trade will be executed at
a price equal to the last one.Stock markets are generally more liquid than their related
options markets for a simple reason: Stock traders are all trading just one
stock, but the option traders may have dozens of option contracts to choose
from. Stock traders will flock to just one form of DLF stock, for example, but
options traders for DLF have perhaps six different expirations and a plethora
of strike prices to choose from. More choices by definition means the options
market will probably not be as liquid as the stock market.Of course,
Theput-call ratiois a popular tool specifically designed to help
individual investors gauge the overallsentiment of the market. The ratio is calculated by
dividing the number of tradedput optionsby the number of tradedcall options. As this ratio increases, it can be
interpreted to mean that investors are putting their money into put options
rather than call options. An increase in traded put options signals that
investors are either starting to speculate that the market will move lower, or
starting tohedgetheir portfolios in case of a sell-off. An increasing ratio is a clear indication that
investors are starting to move toward instruments that gain when prices decline
rather than when they rise. Since the number of call options is found in the
denominator of the ratio, a reduction in the number of traded calls will result
in an increase in the value of the ratio. This is significant because the
market is indicating that it is starting to dampen its bullish outlook. ,.....
What if you get out too early and leave some upside on the table......
This is the classic trader’s worry. Here’s the best counterargument I can think of: What if you make a profit more consistently, reduce your incidence of losses, and sleep better at night? Trading with a plan helps you establish more successful patterns of trading and keeps your worries more in check
Whether you are buying or selling options, an exit plan is a must. Determine in advance what gains you will be satisfied with on the upside. Also determine the worst-case scenario you are willing to tolerate on the downside. If you reach your upside goals, clear your position and take your profits. Don’t get greedy. If you reach your downside stop-loss, once again you should clear your position. Don’t expose yourself to further risk by gambling that the option price might come back.
The temptation to violate this advice will probably be strong from time to time. Don’t do it. You must make your plan and then stick with it. Far too many traders set up a plan and then, as soon as the trade is placed, toss the plan to follow their emotions.
A stock broker is a person who takes care of your
investments and act as a mediator by selling and buying the shares/stocks you
want. Whenever you want to buy or sell your stocks you have to put it in front
of a stockbroker and hence, from there on the stockbroker takes care of the
matter by following your order and placing them in the market.....