Are liquidity costs higher in options markets or in futures markets?

This study compares liquidity costs in options and futures markets. Considerable research has estimated liquidity costs of futures trading, but there is little comparable research about futures options markets. The study uses transaction prices for stock futures and options contracts traded at the National Stock Exchange (NSE) of India. Six different measures are used to estimate liquidity costs of futures contracts. The same measures are also used to estimate liquidity costs of options. Liquidity costs in the options markets are considerably higher than in the futures. Option liquidity costs are shown to increase with the price of the option and decrease with volume.