You can usually tell by how much spread there is between the bid/ask for the the instrument. The closer they are together, the more liquid it is for a given market (and assumes that you're not injecting a major imbalance).
The definition of liquidity answers your question.
"Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets."
http://www.investopedia.com/terms/l/liqu...
Volume defines liquidity. Without volume, liquidity is low or non-existent. Look at volume of options traded first, then open interest.
Once you have an idea how often the option trades, the final check is the bid/ask spread. This is what matters most to the bottom line. What kind and amount of slippage can I expect? If the bid/ask spread is more than 20 cents, I'll usually pass on the trade.
The ideal situation is high volume in the option, high open interest, and a narrow bid/ask spread.
The bigger the company, the higher the volatility, the more the company is in the news, and the longer it has been around, the more likely the options are liquid. The stocks with the most liquidity usually have options with passable liquidity. Stocks in the DJIA are a prime example.
Of course, stocks that are constantly in the news like TSLA, AAPL, NFLX, AMZN, and even GRPN and TWTR are good candidates. Any option that trades more than a hundred or two hundred contracts a day is going to be liquid and have a narrow spread.
Assuming that you are talking about stock options, they are typically more liquid if:
- Underlying stock is liquid
- Closer to expiration rather than longer term
- Strike price close to current market price
