Returns and Option Activity over the Option-Expiration Week for S&P 100 Stocks
Posted: 24 Mar 2010 Last revised: 11 Oct 2016
Date Written: July 16, 2013
Abstract
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.
Keywords: Option Expiration, Stock Returns, Option Delta Hedging
JEL Classification: G12, G13, G14
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Information in Option Volume for Stock Prices
By Allen M. Poteshman and Jun Pan
-
The Information of Option Volume for Future Stock Prices
By Allen M. Poteshman and Jun Pan
-
Informational Content of Option Volume Prior to Takeovers
By Charles Cao, John M. Griffin, ...
-
The Informational Role of Stock and Option Volume
By Kalok Chan, Y. Peter Chung, ...
-
Information, Trade, and Derivative Securities
By Michael J. Brennan and H. Henry Cao
-
Deviations from Put-Call Parity and Stock Return Predictability
By Martijn Cremers and David Weinbaum
-
Modeling the Impacts of Market Activity on Bid-Ask Spreads in the Option Market
By Young-hye Cho and Robert F. Engle
-
Who Buys and Sells Options: The Role and Pricing of Options in an Economy with Background Risk
By Gunter Franke, Richard C. Stapleton, ...