Equity Options During the Short Ban of 2008

63 Pages Posted: 27 Aug 2010 Last revised: 21 Oct 2010

See all articles by Nusret Cakici

Nusret Cakici

Fordham University

Sinan Tan

Fordham University - Gabelli School of Business

Gautam Goswami

Fordham University - Finance Area

Abstract

The Securities and Exchange Commission’s September 2008 emergency order introduced a near complete shorting ban of some 800 financials traded in the US. This paper provides an empirical analysis of the equity options market during the three months that include the duration of the ban. Using transaction level data from OPRA (The Options Price Reporting Authority) we are able to study the options volume, spreads, pricing measures as well as option trade volume informativeness during the ban. We also consider the put call parity relationship during the ban. We find that during the ban, banned stock option effective and quoted spreads increase as well as the Black-Sholes-Merton volatilities and price relative to non banned. Using intraday data, we regress future stock returns on lagged signed option trading volume and find that options volume becomes informative during the ban for the banned stocks. Our measure of the violation of American stick put call parity exhibits a significant increase during the ban period and only for the banned stocks. Economic magnitudes of our results often suggest that the impact of the ban on equity options market was likely not as dramatic as initially thought.

Keywords: Equity Options, Capital Markets, Short Sales

Suggested Citation

Cakici, Nusret and Tan, Sinan and Goswami, Gautam, Equity Options During the Short Ban of 2008. Fordham University Schools of Business Research Paper No. 2010-004; 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1666371 or http://dx.doi.org/10.2139/ssrn.1666371

Nusret Cakici

Fordham University ( email )

Fordham University
Graduate School of Business
New York, NY 10023
United States
2126366776 (Phone)

Sinan Tan

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
Bronx, NY 10458
United States

Gautam Goswami (Contact Author)

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States
212-636-6181 (Phone)
212-765-5573 (Fax)

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