Trade Duration, Informed Trading, and Option Moneyness

Option Market Characteristics and Price Monotonicity Violations

“…Irrespective of investor type, Types III and V violations occur most frequently for small trades, meaning that small traders are less informed and noisy than are option investors who can submit large orders. These findings again support the idea that large traders armed with wealth and experience generally have better information than small traders have in the KOSPI 200 options market (Ahn et al, 2010;Chung et al, 2016). For individual trades, Type III violation is observed much more frequently for small trades (47.06%) than for large trades (28.75%).…”

“…Some atypical or irregular trading may prevail at maturity dates because of high rates of speculative trading and/or trading to close existing positions (Chang & Lin, 2015;Chung, Park, & Ryu, 2016;Ryu, 2011Ryu, , 2015bRyu, , 2016. Using this dataset has several benefits.…”

“…However, in these cases also, other trades exhibit significant violation rates; thus, factors besides the microstructure factors explain the systematic violation patterns. Our interest is motivated by the information content of trade size and the association between size and price dynamics (Ahn, Kang, & Ryu, 2010;Angelidis & Benos, 2009;Chung et al, 2016;Lee & Yi, 2001;Ryu, 2013aRyu, , 2015a. Compared to other developed derivatives markets (Bakshi et al, 2000;P erignon, 2006), the restrictive role of the KOSPI 200 options' microstructure factors in explaining the violations requires us to investigate other dimensions of option market characteristics.…”

“…For example, ITM & Large indicates large trades in the ITM option market.18 Previous studies claim that domestic individual investors prefer to invest in the KOSPI 200 options market to exploit the high leverage effect of OTM options and the lottery-like properties of the KOSPI 200 OTM options trading, whereas foreign investors, who are more sophisticated and better informed, prefer ITM options trading to exploit the high sensitivity provided by the ITM options(Ahn et al, 2008(Ahn et al, , 2010Chung et al, 2016;Kim & Ryu, 2015b). For each option moneyness, this table presents the occurrence rates of the Types I-V violations by further classifying options trades based on their sizes.…”

The impacts of public news announcements on intraday implied volatility dynamics

“…In fact, spread sizes, depths, investor participation rates, and degrees of informed trading differ significantly across KOSPI 200 options contracts at different moneyness levels. Options investors’ trading motives and transaction characteristics also differ by the option moneyness level that the investors choose (Chung, Park, & Ryu, ; Ryu & Yang, ). Previous studies on the KOSPI 200 options market show stark differences in the leverage, investor composition, order size, and information content of the ITM and OTM options markets (Kim & Ryu, ; Yang, Kutan, & Ryu, ).…”