Abstract
We examine which categories of option trading volume carry information about future stock prices around corporate news announcements. We predict and find that purchases of options are informative on news days and ahead of unscheduled events but not before scheduled events, and sales of options predict returns only ahead of scheduled news releases. Therefore, although the arrival of new information is an important reason why option volume predicts stock returns, this relation depends on whether the information is scheduled or unscheduled because only the former affects volatility and thus option prices. We also study how trading costs and margin costs affect ex post profitability around news.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 4810-4827 |
| Number of pages | 18 |
| Journal | Management Science |
| Volume | 69 |
| Issue number | 8 |
| DOIs | |
| State | Published - Aug 2023 |
Keywords
- news releases
- option trading
- stock return predictability
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research