Evaluation of Investment Strategies with Options

Fernandes, Ana Cristina; Machado-Santos, Carlos

doi:10.2139/ssrn.313978

Cited by 2 publications

(1 citation statement)

References 57 publications

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“…Conversely, for call options, the range in which the strike prices are north (south) of the daily SPX index closing price plus (minus) 1% defines OTM (ITM) call options. Our defined range falls within the range enveloped by single-point ATM estimates implied by Harvey and Whaley (1991) at the floor, and the more generous ±10% range implied by Fernandes and Machato-Santos (2002) at the ceiling.…”

Section: Methodssupporting

confidence: 58%

Was There Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks?

2010

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After the September 11 attacks, several major newswires reported that there were insiders who tried to profiteer from the options market in anticipation of the event. We use the Student's t-statistics and several non-parametric statistics to test whether there was abnormal trading in S&P 500 (SPX) index options prior to the September 11 attacks. Our findings from the out-of-the-money (OTM), at-the-money (ATM) and in-the-money (ITM) SPX index put options and ITM SPX index call options lead us to reject the null hypothesis that there was no abnormal trading in these contracts prior to the September 11 attacks. We also find evidence consistent with three bearish speculation strategies, namely the Put Purchase strategy, the Put Bear Spread strategy, and the Naked ITM Call Write strategy. In addition, we conclude that there is evidence of abnormal trading in the September 2001 OTM, ATM and ITM SPX index put options immediately after the 9-11 attacks. We also employ the CBOE VIX to confirm the conclusion drawn from the call and put options. This, in turn, is consistent with insiders anticipating the 9-11 attacks.

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Section: Methodssupporting

confidence: 58%