Options Trading: Is it difficult to sell deeply in-the-money puts?

Not really. An option's price consists of intrinsic value (the difference between the strike and forward stock price) and time value (the rest of it). Assuming expiration in 30 days and a 0.07% 30-day risk-free rate, the contract described in the question details trades at about 70 vol. At S = 12 your contract has intrinsic value of $1.00 and time value of $0.50. At S = 5 your contract has intrinsic value of $7 and time value of, well, basically nothing (actually, slightly negative but you said you're starting out so we'll ignore the nuances of rho).  Thus, in our contrived scenario, you would have to simply get someone to accept your put at about its intrinsic value. Given that you probably can't borrow at anything close to the risk-free rate and someone else, e.g. a market maker, can, this shouldn't be a challenge, even if the open interest on the contract, prior to you putting you putting up a sell, is zero. If I buy your option the intrinsic value is basically a non-factor as it is money that I can expect to recoup upon expiration - I pay you the present value of $7 for it and then get $7 on expiry from the OCC. A super deep in-the-money option has a delta of 1, i.e. it behaves just like a stock. A crazy far out-of-the-money option has very little time value because there is such a small probability of it ever being more than a volatility trader's Christmas bonus. Thus, far out-of-the-money options don't tend to trade actively - the time value, the part of an option that makes options all non-linear and sparkly, is basically non-existent. In-the-money options tend to be slightly more liquid than similarly out-of-the-money contracts, i.e. a put's open interest as a function of strike tends to be slightly skewed left That said, open interest can be a deceptive indicator of liquidity. If the underlying is liquid, fairly priced orders will be rapidly fulfilled since they can be easily hedged in the underlying market. In fact, your broker will probably be willing to do it for you (maybe not at seventy vol...). Thus, if you're talking about a contract with an actively traded stock underneath it you should not have a problem getting out of a small position. Note regarding spreads, premiums and stock prices A lower-priced stock (no pennies) has no good reason to have a smaller bid-ask spread than a higher-priced stock, all else held equal. That said, if a stock crashes from $11 to $5 on bad news, every market maker will go wide on spreads until they get a handle on the situation. Similarly, for the time value of the option, the only reason it would spike is if the crash increased traders' expectations of future volatility. Practically, yes, a stock crashing from $11 to $5 would spike volatility and thus the time value of options. Disclaimer: talk to your broker before blowing up your rent money.

On option market making desks, you aggregate the number of puts and calls of the same strike. This is due to put/call parity, which is a fancy way of saying the risk is the same (given that you're hedging the delta, which the MM will). So basically if you phone up for a price, the guy won't care whether it was a put or a call you wanted, he'll just look at the strike/term. The actual cash amount is naturally different, but the software will figure that out.

There will usually be a market, however the bid/ask spread will be pretty wide. This depends on the time left on the option... Take Sprint as an example. Currently at 8.72. The bid/ask on 11 Apr 14 14.00 put is 4.95/5.40. The intrinsic value is $5.28. There are only 3 days left to expiration on this option.

This depends on the market, and you should really trade small amounts with the particular option you are interested in to see what the dynamics are like. One thing that I have seen happen is that in some illiquid options you can sell deep in the money options at a huge premium when the market crashes.  What is happening is that when the market crashes, you have people that are short puts that are desperate to get out of that position in order to avoid a margin call, so you can sell them a life preserver at a nice premium.

1) Market makers will buy your put option. It is their duty to make markets (hence the name ;) ). There will not be a huge market at that range. however you should be able to sell the option for maybe a bit less than intrinsic value. 'Intrinsic value' would be the theoretical value and 'a bit less than that' contains the profit for the market maker. You will not be stuck with the option. 2) The deeper the put gets in the money the closer it gets to intrinsic value. If the stock gaps down and it is a low volume option series there might not be a tradable price for a bit since the option price is derived from the (tradable) stock price. Or the options series might be quoted for low volume. Once the stock is tradable for a bit of volume, all options series will be quoted like they always are. For inspiration, take a look at the deep in the money series of Apple options: http://finance.yahoo.com/q/op?s=aapl+options The deep in the money puts are traded with a wider bid/ask spread compared to the at the money series. Also volume is a lot less. Bid price is close to intrinsic value.

It really depends from the instrument and the market environment having trading through the years. Liquidity / Slippage can be an issue especially if you have the position in a strategy with lots moving parts and you have a risk signals based on Bid and Ask. Market makers can disappear for quite a bit during volatility shock and messing up a bit your model that you tested in "normal" market. E.g. : I remember was long couple of DAX 9500 Put ( as a part a strategy, if recall correctly was long vol, but mostly delta neutral ) and on the 15th Oct 2014 when Dax broke 8500 ( concurrently the 20 standard deviation event on the Us treasuries)  did not quote a "decent" Bid / Ask quite a while and nobody was biting me on my hypothetical MID that was posting around the moving intrinsic value... and even was Theoretically on a gain ( at that point was long vol / gamma and thus at that point slightly short delta ) the increase of slippage calculated on the bid and ask (would I could hypothetically bite with market order) was offsetting a good part of the Theo P&L... had to hedge in different way and went to a settlement of the 9500..

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The volume of deep-in-the-money calls and puts is usually paltry, even for $SPY $AAPL etc.  You can trade them, but the bid-ask spread will cause problems for you.

Its not difficult to sell deep in the money puts because every option has a market and there is some price you will be able to sell them at.  The question you probably want to have answered is : Is it difficult to sell deep in the money puts for close to fair value.  The answer to that question for the most part depends on the liquidity of the underlying stock. Since deep in the money puts are almost the functional equivalent of stock(since they have close to 100 delta), the options market maker who is going to be buying the deep in the money puts from you, is going to look to hedge his position by buying stock.  If the stock is thinly traded and/or quoted wide, the chances of you being able to sell your puts at fair value is reduced since the trader will have difficulty in executing his hedge and would likely bid significantly below fair value.