Detecting Informed Trading Activities in the Options Markets
University of Zurich - Swiss Banking Institute (ISB); Swiss Finance Institute
University of Zurich - Swiss Banking Institute (ISB)
Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute
April 7, 2014
Swiss Finance Institute Research Paper No. 11-42
We develop a statistical approach to detect informed trades in options markets. The method is applied to 9.6 million of daily option prices. Empirical results suggest that option informed trades tend to cluster prior to certain events, generate easily large gains exceeding millions, are not contemporaneously reflected in the underlying stock price, and involve liquid options during calm times and cheap options during turbulent times. These findings are not driven by false discoveries in informed trades which are controlled using a multiple hypothesis testing technique. Pricing, policy, and market efficiency implications of these findings are discussed.
Number of Pages in PDF File: 39
Keywords: Massive dataset, False Discovery Rate, Options Trades, Open Interest, Informed Trading
JEL Classification: G12, G13, G14, G17working papers series
Date posted: January 13, 2010 ; Last revised: May 8, 2014
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