Stealth trading in options markets

Amber Anand, Sugato Chakravarty

Research output: Contribution to journalArticlepeer-review

69 Scopus citations

Abstract

We investigate how price discovery occurs in the options markets through traders' trade size choice. By employing transactions data on all options traded on a sample of 100 firms, we show that informed traders fragment their orders into small (medium) trades for low (high) volume contracts. We also find that almost 60% of the price discovery occurs in the exchange with the largest market share for a given option, where informed traders favor medium size trades. Upon examining distinct option series for a given stock, we find that at-the-money calls display the highest information share. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION.

Original languageEnglish (US)
Pages (from-to)167-188
Number of pages22
JournalJournal of Financial and Quantitative Analysis
Volume42
Issue number1
StatePublished - Mar 1 2007
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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