Jumps in Option Prices and Their Determinants: Real-Time Evidence from the E-Mini S&P 500 Option Market
76 Pages Posted: 17 Dec 2013 Last revised: 23 Jun 2014
Date Written: June 23, 2014
We study the real-time characteristics and drivers of jumps in option prices. To this end, we employ high frequency data from the 24-hour E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the underlying futures price. 14% to 28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public releases.
Keywords: Co-Jumps, Jumps, Informed traders, Liquidity, Option Markets, Scheduled News Announcements
JEL Classification: C58, G10, G12, G13
Suggested Citation: Suggested Citation