Stock returns on option expiration dates: Price impact of liquidity trading

Chin-Han Chiang

Journal of Empirical Finance, 2014, vol. 28, issue C, 273-290

Abstract: This paper documents striking evidence that stocks with a sufficiently large amount of deeply in-the-money call options experience a significant return drop of 0.8 percentage point on option expiration dates; this price movement is then followed by a short-term reversal. We attribute the negative returns to the selling pressure from call option buyers who exercise deeply in-the-money calls and sell the acquired stocks immediately. This selling pressure is offset neither by parallel option writers' purchases nor by put option rebalancing on the opposite end.

Keywords: Stock return; Option expiration; Price pressure (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:28:y:2014:i:c:p:273-290

DOI: 10.1016/j.jempfin.2014.03.003

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