Volatility Information Trading in the Option Market

Ni, Sophie Xiaoyan; Pan, Jun; Poteshman, Allen M.

doi:10.1111/j.1540-6261.2008.01352.x

Cited by 227 publications

(53 citation statements)

References 51 publications

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“…Further, Jayaraman et al (2001) find evidence that the trading in the options market leads the trading in the underlying stock. Ni, Pan, and Poteshman (2008) detect the presence of private information in the options market before earnings announcements. Brent, Morse, and Stice (1990), Chen and Singal (2003), and Senchak and Starks (1993), all show that the level of short interest in a stock is affected by whether there are options available to trade on that stock.…”

Section: Target Characteristicsmentioning

confidence: 99%

Sources of target stock price run-up prior to acquisitions

Brigida

Madura

2012

Journal of Economics and Business

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Section: Target Characteristicsmentioning

confidence: 99%

Sources of target stock price run-up prior to acquisitions

Brigida

Madura

2012

Journal of Economics and Business

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“…He, for the most part, reports strong feedback relationship between the op tions volume and expected future volatility, however results for atthemoney (ATM) and outofthe money (OTM) op tions are found to be more pronounced. Ni, Pan and Poteshman (2008) study whether options volume is informative about future volatility of the underly ing assets. Motivated by the unique characteristics of options market that it suits to volatility informed investors well, they conduct this study employing unique dataset of stock op tions trade provided by CBOE over the period of 1990 to 2001.…”

Section: Introductionmentioning

confidence: 99%

Volatility Informed Trading in the Options Market: Evidence from India

Pathak

2015

Business: Theory and Practice

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The purpose of this paper is to investigate the trading activity in options market based on information about expected future volatility in spot market. We employ Common Implied Volatility as a measure of expected volatility and options volume and changes in Open Interests as measures of options trading activity. We first test for simultaneous information flow in the two markets using multiple regression technique. Next, we test for information based or hedge based use of options using Trivariate Vector-auto Regression framework. We further consider the classes of options moneyness and the market trends in our analysis to examine if the trader’s preference of options changes with change in description of options intrinsic value and market environment. We use daily closing data of S&P CNX Nifty Index options traded on National Stock Exchange, India. We, for the most part, find negative and significant relationship in contemporaneous regression suggesting active trading by arbitrageurs. A feedback relationship is observed in vector auto regression analysis suggesting that options are traded in India for both information based trading and hedging purposes. We also observe the relationship to be varying when market trends and classes of options moneyness are considered. This indicates that traders are not indifferent in their choice of trading venue when market conditions and factors change. The results of this study are helpful for traders in managing the risk and return of their portfolio based on volatility forecast. This study is distinctive as it examines the scarcely researched area of volatility informed trading in an emerging market set up.

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“…According to Ni et al (2008), non-market maker is informative about the future realized volatility of underlying stocks and demand for volatility from trading volume of individual equity options. The price impact increases by 40% as informational asymmetry about stock volatility intensifies in the days leading up to earnings announcements and diminishes to its normal level soon after the volatility uncertainty is resolved.…”

Section: The Impacts Of Option Trading (Option Volume) On Firm Value mentioning

confidence: 99%

“…A change in option spreads denotes a change in the relative allocation of informed traders between the two markets. The information about the volatility of underlying security price can be used by investors to bet on such volatility in option market (Ni, Pan & Poteshman, 2008). Ni et al (2008) find that non-market maker is informative about the future realized volatility of underlying stocks and demand for volatility from trading volume of individual equity options.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Options Trading on the Relationship between Research Quotient and Firm Performance

Huang¹,

Irawan²

2017

IJEF

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The performance of innovation could be counted by the number of patent. Patent information enables a firm to estimate R&D efficiency and stock market value. Nonetheless, patents is not universal because more than 50% companies in COMPUSTAT do not patent their new products. Since patents have some drawbacks, Cooper, Knott, and Yang (2015) use Research Quotient (RQ) as an indicator of firm innovation because RQ measures the productivity of the R&D department, which produces a new innovative product and transforms it into revenues. In this paper, we examine the impact of option trading on the relation between RQ and stock market return (or firm value). We find that RQ has the positive impact on firm value, proxy by market-to-book (MTB) value. The option dummy, which is the firm with option trading, has significantly positive impact on the relation between RQ and firm value and insignificantly positive impact on the relation between RQ and future stock return. Nonetheless, interaction term of RQ and option volume has positive and significant impacts on MTB and future stock return.

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Volatility Information Trading in the Option Market

Cited by 227 publications

References 51 publications

Sources of target stock price run-up prior to acquisitions

Sources of target stock price run-up prior to acquisitions

Volatility Informed Trading in the Options Market: Evidence from India

The Impact of Options Trading on the Relationship between Research Quotient and Firm Performance

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