What Is the Primary Reason for Low Liquidity in Out-of-the-Money Options Contracts?

Out-of-the-money (OTM) options have a low probability of expiring in the money, making them speculative and less appealing to many traders and market makers. Low demand translates to fewer orders, resulting in a shallow order book and wide bid-ask spreads.

This lack of liquidity makes OTM options prone to high slippage, as a trade can easily exhaust the limited available volume, forcing execution at significantly worse prices.