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I wish there were something available that discussed this topic in detail. No websits or books I know of cover it to any useful extent. They breifly describe time value but not in any way that you can make use of it.

I agree with you looking about liquidity, i.e. volume. I'm just not sure what constitutes good volume for options. Why does open interest make the spread descrease? Are you referring to short interest?

Also, what do you mean by 10% frictional cost?

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