Illiquid Option

Dehydrated milk. Powdered soup mix. Kool-Aid packets. All illiquid options...just add water, and you've got the liquid versions.

Also, it's a term for option contracts that are hard to turn into cash.

Options give their holders the right, but not the obligation, to buy or sell some underlying asset. You might acquire an option to buy 100 barrels of oil at $75 a barrel. Standard options are traded on derivative exchanges, operating under a system similar to the kind that facilitates stock trading.

Some types of options are relatively easy to turn into cash. The market is very liquid.

Others pose more of a problem. If an option is unusual in some way, or has an expiration very far in the future, or gets exercised at a strike price way off the current trading price for the underlying asset, it can become illiquid.

That situation means there isn't much of a market for it, i.e. not a lot of people looking to buy or sell that type of option. It leads to potential big swings in value for the option, with wide bid/ask gaps.