Abstract

http://ssrn.com/abstract=1522157
 
 

References (46)



 
 

Citations (3)



 


 



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

July 3, 2012

Swiss Finance Institute Research Paper No. 11-42

Abstract:     
We develop a statistical approach to detect informed trading in options markets. The method is applied to approximately 9.6 million of daily option prices from a selected set of 31 companies.

Empirical results suggest that detected option informed trades tend to cluster prior to certain events, take place more in put than call options, 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. For example, option pricing models should account for all relevant current information. However nearly all option prices involved in informed trades do not show any specific reaction to large increments in open interest and volume. The strong movements in detected options are simply due to subsequent large movements in stock prices originated by specific firm news. As another example, if some of the detected informed trades are indeed illegal, for example originated by insiders, it can be optimal for regulators to expend relatively more monitoring efforts on the options markets.

Number of Pages in PDF File: 36

Keywords: Options Trades, Open Interest, Informed trading, False Discovery Rate

JEL Classification: G12, G13, G14, G17, G34, C61, C65

working papers series


Download This Paper

Date posted: January 13, 2010 ; Last revised: July 4, 2012

Suggested Citation

Chesney, Marc and Crameri, Remo and Mancini, Loriano, Detecting Informed Trading Activities in the Options Markets (July 3, 2012). 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
Feedback to SSRN


Paper statistics
Abstract Views: 3,853
Downloads: 811
Download Rank: 14,762
References:  46
Citations:  3

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.562 seconds