Assessing Liquidity in Long-Dated SPX Options

Summary

The document asks whether SPX options with expirations beyond two years trade actively enough to support volatility-surface calibration. It notes that Bloomberg displays SPX volatility values out to five years and contrasts quoted bid-ask spreads for at-the-money options at several maturities on one date. The spreads widen substantially at the longer tenors, raising a practical question about how much confidence to place in those quotes.

Key ideas

• Long-dated SPX volatility quotes may be available even when trading liquidity is limited.
• The document compares at-the-money bid-ask spreads across one-, two-, and five-year expirations on a single date.
• Wider spreads at longer maturities can make observed quotes less reliable for model calibration.
• The document poses a practitioner question and provides no answer or broader liquidity data.

Tags

# Liquidity of SPX options with tenors over 2 years


# Liquidity of SPX options with tenors over 2 years












I see that Bloomberg provides SPX index volatility surface values for option tenors up to and including 5 years. I used option tenors of up to 2 years in the past (over five years ago) when I worked with equity options models. In the opinion of practitioners, is there sufficient liquidity for tenors over 2 years to use these for model calibration? For example, on 9/17/24, the bid/ask for the ATM at 5 years is 69 bps, compared with the 30 bps bid/ask for the 2-year ATM, and 8 bps for the 1-year ATM.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.