Short-term options: Clienteles, market segmentation, and event trading

Arjun Chatrath, Rohan A. Christie-David, Hong Miao and Sanjay Ramchander

Journal of Banking & Finance, 2015, vol. 61, issue C, 237-250

Abstract: We compare clientele and information share in weekly- (Weeklys) and monthly-expiring options (Monthlys) on the S&P 500 index. Striking dissimilarities between the two instruments are found, most apparent being the much smaller trade size and substantially higher implied volatility in Weeklys, consistent with both speculation and event trading. Additionally, the price discovery contribution of Weeklys, albeit modest when compared to the underlying index itself, is substantially larger than that of Monthlys. The cumulative evidence points to an increasingly segmented options market. Thus, studies employing only standard options to investigate price discovery will likely underestimate the informational role of options.

Keywords: Weeklys; Monthlys; Greeks; Implied volatility; Spread; Price discovery (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:61:y:2015:i:c:p:237-250

DOI: 10.1016/j.jbankfin.2015.09.001

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