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Returns and Option Activity over the Option-Expiration Week for S&P 100 Stocks

Chris T. Stivers

University of Louisville

Licheng Sun

Old Dominion University

July 16, 2013

Journal of Banking and Finance, Vol. Forthcoming.

For S&P 100 stocks, we find that the weekly returns over option-expiration (OE) weeks (a month's third-Friday week) tend to be high, relative to: (1) the third-Friday weekly returns of other stocks with less option activity, (2) the own stock's other weekly returns, (3) the risk, based on asset-pricing alphas. For these same stocks, a month's fourth-Friday weekly returns underperform modestly. We suggest the following two avenues are likely partial contributors towards understanding these return patterns: (1) delta-hedge rebalancing by option market makers, with a reduction in short-stock hedge positions over the OE week, and (2) declining risk perceptions over the OE week, as measured by option-derived implied volatilities. Our findings suggest option activity can induce reliable patterns in the weekly returns of option-active large-cap stocks.

Number of Pages in PDF File: 49

Keywords: Option Expiration, Stock Returns, Option Delta Hedging

JEL Classification: G12, G13, G14

Accepted Paper Series

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Date posted: March 24, 2010 ; Last revised: July 16, 2013

Suggested Citation

Stivers, Chris T. and Sun, Licheng, Returns and Option Activity over the Option-Expiration Week for S&P 100 Stocks (July 16, 2013). Journal of Banking and Finance, Vol. Forthcoming.. Available at SSRN: http://ssrn.com/abstract=1571786 or http://dx.doi.org/10.2139/ssrn.1571786

Contact Information

Chris T. Stivers
University of Louisville ( email )
Finance Dept., College of Business
University of Louisville
Louisville, KY 40292
United States
502-852-4829 (Phone)
Licheng Sun (Contact Author)
Old Dominion University ( email )
College of Business and Public Administration
Department of Finance
Norfolk, VA 23529-0222
United States
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