Returns and Option Activity over the Option-Expiration Week for S&P 100 Stocks
Christopher Todd Stivers
University of Louisville
Old Dominion University
March 7, 2013
We find new empirical regularities that suggest cycles in option activity can induce reliable patterns in the weekly stock returns of the largest-cap stocks. For S&P 100 stocks, the weekly returns over option-expiration 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. Along with related findings in recent literature, our analysis of option activity indicates delta-hedge rebalancing by market makers seems a likely contributor to the return patterns.
Number of Pages in PDF File: 47
Keywords: Option Expiration, Stock Returns, Option Delta Hedging
JEL Classification: G12, G13, G14working papers series
Date posted: March 24, 2010 ; Last revised: March 10, 2013
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