What Is the Impact of “Expiration Date” Proximity on an Option’s Liquidity?

As an option's expiration date approaches, its liquidity typically decreases. Options with a short time until expiration (short-dated options) have a rapidly decaying time value (Theta), making them riskier and less attractive for many traders.

This reduced interest leads to lower trading volume and often a wider bid-ask spread, which signifies lower liquidity. The exception is the "expiration week," where volume can spike due to traders closing or exercising positions.