Jumps in Option Prices and Their Determinants: Real-Time Evidence from the E-Mini S&P 500 Option Market

65 Pages Posted: 17 Dec 2013 Last revised: 29 Jul 2019

See all articles by George Kapetanios

George Kapetanios

King's College, London

Eirini Konstantinidi

University of Manchester - Manchester Business School

Michael Neumann

Independent

George S. Skiadopoulos

Queen Mary, University of London, School of Economics and Finance; University of Piraeus

Date Written: July 24, 2019

Abstract

We provide first-time evidence of 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. Interestingly, illiquidity does not drive jumps in the highly liquid S&P 500 index options market, where we also find sizable and idiosyncratic price jumps.

Keywords: Co-Jumps, Jumps, Informed Traders, Liquidity, Option Markets, Scheduled News Announcements

JEL Classification: C58, G10, G12, G13

Suggested Citation

Kapetanios, George and Konstantinidi, Eirini and Neumann, Michael and Skiadopoulos, George, Jumps in Option Prices and Their Determinants: Real-Time Evidence from the E-Mini S&P 500 Option Market (July 24, 2019). Available at SSRN: https://ssrn.com/abstract=2368385 or http://dx.doi.org/10.2139/ssrn.2368385

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Eirini Konstantinidi

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Michael Neumann

Independent ( email )

No Address Available
United States

George Skiadopoulos (Contact Author)

Queen Mary, University of London, School of Economics and Finance

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

HOME PAGE: http://web.xrh.unipi.gr/faculty/gskiadopoulos/

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