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http://ssrn.com/abstract=1522157
 
 

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Detecting Informed Trading Activities in the Options Markets


Marc Chesney


University of Zurich - Swiss Banking Institute (ISB); Swiss Finance Institute

Remo Crameri


University of Zurich - Swiss Banking Institute (ISB)

Loriano Mancini


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

April 7, 2014

Swiss Finance Institute Research Paper No. 11-42

Abstract:     
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, G17

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Date posted: January 13, 2010 ; Last revised: May 8, 2014

Suggested Citation

Chesney, Marc and Crameri, Remo and Mancini, Loriano, Detecting Informed Trading Activities in the Options Markets (April 7, 2014). Swiss Finance Institute Research Paper No. 11-42. Available at SSRN: http://ssrn.com/abstract=1522157 or http://dx.doi.org/10.2139/ssrn.1522157

Contact Information

Marc Chesney
University of Zurich - Swiss Banking Institute (ISB) ( email )
Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Remo Crameri (Contact Author)
University of Zurich - Swiss Banking Institute (ISB) ( email )
Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland
+41 44 634 45 83 (Phone)
Loriano Mancini
Ecole Polytechnique Fédérale de Lausanne ( email )
Quartier UNIL-Dorigny
Bâtiment Extranef
1015 Lausanne, CH-1015
Switzerland
HOME PAGE: http://sfi.epfl.ch/mancini.html
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
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