Execution quality

Liquidity and execution quality

Theoretical edge can disappear if the market is too wide, the position is hard to exit, or the trade requires unrealistic fills.

Liquidity penalty

The scorer reduces points for fair or poor liquidity. It also increases the stress-loss scenario because slippage can be most painful when the trade is already going wrong.

Practical checks

• Bid/ask spread relative to premium.
• Open interest and volume.
• Whether all legs can be closed together.
• Whether the position remains liquid under stress.

Primary reading: Investor.gov risk tolerance overview · FINRA options overview and risk · SEC Investor Bulletin on options · OIC options pricing overview · OCC Options Disclosure Document