Informed Options Strategies before Corporate Events

72 Pages Posted: 9 Oct 2016 Last revised: 7 Jul 2022

See all articles by Patrick Augustin

Patrick Augustin

McGill University; McGill University, Desautels Faculty of Management

Menachem Brenner

New York University (NYU) - Department of Finance

Gunnar Grass

HEC Montréal

Piotr Orłowski

HEC Montréal

Marti G. Subrahmanyam

New York University (NYU) - Leonard N. Stern School of Business

Date Written: June 5, 2015

Abstract

We analyze how informed investors trade in the options market ahead of corporate news when they receive private, but noisy, information about the timing and impact of these announcements on stock prices. We propose a framework that ranks options trading strategies (option type, maturity, and strike price) based on their maximum attainable leverage when price-taking investors face market frictions. We exploit the heterogeneity in announcement characteristics across twelve categories of corporate events to support that event-specific information signals are informative for announcement returns and that they impact the optimal choice of option moneyness and tenor.

Keywords: corporate announcements, derivatives, event studies, insider trading, market microstructure

JEL Classification: G12, G13, G14, K42

Suggested Citation

Augustin, Patrick and Augustin, Patrick and Brenner, Menachem and Grass, Gunnar and Orłowski, Piotr and Subrahmanyam, Marti G., Informed Options Strategies before Corporate Events (June 5, 2015). CFS Working Paper, No. 541, Journal of Financial Markets, Forthcoming, LawFin Working Paper No. 39, Available at SSRN: https://ssrn.com/abstract=2848989 or http://dx.doi.org/10.2139/ssrn.2848989

Patrick Augustin

McGill University, Desautels Faculty of Management ( email )

1001 Sherbrooke Street West
Quebec
Montreal, Quebec H3A 1G5
Canada

HOME PAGE: http://www.patrickaugustin.se

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

HOME PAGE: http://https://patrickaugustin.ca/

Menachem Brenner

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0323 (Phone)
212-995-4233 (Fax)

Gunnar Grass

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T2A7
Canada
5143401540 (Phone)

Piotr Orłowski

HEC Montréal ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Marti G. Subrahmanyam (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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