The Problem
In early 2026, I had my eye on TRON. The logic was simple: the stock was oscillating around $20, IV was elevated, and selling covered calls would bring in $80–120 a month in premium. Small position size, looked like an ideal “rent-collecting” ticker.
So I built a position — 4,300 shares, selling two CCs. The first three months were genuinely comfortable. A few hundred dollars in premium landed like clockwork every month. I thought I’d found a money printer.
Then the problem arrived.
My Thinking
Two months later, I wanted to close the position and discovered a brutal reality: the options chain had virtually no volume.
- Bid/Ask spreads were absurdly wide (think $0.05 / $0.50)
- An order sat for an hour without a single fill
- Want to close early? Want to roll? There was simply no counterparty
That’s when it dawned on me: the price of every dollar of premium I’d collected wasn’t stock price risk — it was the fact that I’d locked my money in a room I could barely get out of.
Let’s do the math:
- Position market value: 4,300 × ~$17 = ~$73,000
- Monthly premium: ~$200
- Annualized premium yield: $2,400 ÷ $73,000 ≈ 3.3%
I had locked up $73,000 in capital for a 3.3% cash flow — and I couldn’t even run if I wanted to.
During the same period, if I’d chosen SOFI instead (similar share price, but massive daily options volume), the same capital could have delivered:
- CSP/CC premium annualized at 15–20%
- Ability to roll, close, or adjust at any time
- Bid/Ask spreads typically $0.01–$0.02
Trading Insight
Liquidity isn’t a cost — liquidity is part of the return itself.
I used to think low volume just meant “buying and selling is a bit more annoying.” Now I understand it’s an entirely different game:
| High-Liquidity Tickers | Low-Liquidity Tickers | |
|---|---|---|
| Closing | Instant fill, tight spreads | May sit unfilled for hours |
| Rolling | Flexible, cost-controlled | Nearly impossible |
| Black swan event | Exit immediately, loss contained | Forced to ride it out, watching helplessly |
| Psychological pressure | Low | Extremely high |
The TRON trade was ultimately profitable (I collected plenty of premium), but the psychological scar it left was worse than any losing trade. A loss means you got it wrong — you know that. But this feeling of “making money but being unable to get out” — that’s helplessness.
Practical Advice
- Screen tickers by average daily options volume and Open Interest first: Anything under 100 contracts a day — eliminate it immediately.
- Watch out for Bid/Ask spreads wider than $0.10: Wide spreads mean poor liquidity. Your real transaction cost is far higher than it looks.
- Accept earning 5% less for the peace of liquid markets: That 5% you leave on the table is your “liquidity insurance premium.” It’s worth every cent.
- Small-cap premium looks tempting, but it’s not worth it: High premium often signals poor liquidity and high risk — the market never gives away free money.
- Before opening any position, run a mental test: Imagine you need to close immediately. How long would it take? What would it cost? If the answer makes you uncomfortable, don’t open the trade.
Trading Insights #004 · To be continued