a potential profit for a successful trading system is dependent on the liquidity of the market. for stock iwm, the bid and ask size most times are only a few thousand shares, while its option is much thicker, in a range of hundreds of thousands shares. for example, spy has 10 thousands contracts on the bid. so Medallion fund makes more money from option than from stock itself?
option bid/ask size is thicker than iwm stock, but option trading volume is much thinner. why do not institutions trade option as much as stock? is that because option is more expensive to trade?
Options are a derivative of the stock/etf. Each option requires hedging. It would be very rare for the option to be more liquid than the stock/etf it is based on. Would you offer that size if it could not be hedged?
it is very liquid, more than stock itself. the question is why the trading volume is not as much as the stock.
The stock is more liquid, as I pointed out, +20mm shares in one day. I added OI. Look at the monthly options Open Interest. The small-cap index does not get the same interest as the large-cap ones like SPY and QQQ.