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How Do Automated Market Makers (AMMs) in Options Trading Handle Liquidity Risk?

AMMs use liquidity pools funded by LPs and algorithmic pricing to ensure a continuous counterparty is available for trades.
Greeks.Live05.11.25

How Do Automated Market Makers (AMMs) in Options Trading Handle Liquidity Risk?

AMMs in options trading utilize liquidity pools funded by users to provide continuous buy and sell prices. Liquidity providers (LPs) deposit assets and receive trading fees.

The AMM algorithm adjusts the option's price based on the ratio of assets in the pool. This structure ensures that a counterparty is always available, thus mitigating the liquidity risk associated with traditional order book systems where a match might not be found.

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