This paper investigates option valuation when the underlying market suffers from illiquidity of price impact. Using option data, I infer trading activities and price impacts on the buy side and the sell side in the stock market from option prices across maturities. The finding displays that the stock market is active when the stock prices plummet, but becomes silent after the market crashes. In addition, the difference of option implied price impacts between the buy side and the sell side, which indicates asymmetric liquidity, increases with the time to maturity, especially on the day of the market crisis. Moreover, investors have different perspectives on the future liquidity after liquidity shocks when they are in a bull market or in a bear market according to the option implied price impact (or market depth) curves. I also calibrate three market indices simultaneously and reach the same conclusion that the three markets become erratic on the event date and calm down in the aftermath.
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