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.
|Number of pages
|Journal of Financial and Quantitative Analysis
|Published - Mar 1 2007
ASJC Scopus subject areas
- Economics and Econometrics