Option Trading after the Opening Bell and Intraday Stock Return Predictability

Financial Management, 49(3), 769-804.

70 Pages Posted: 5 Jan 2018 Last revised: 16 Oct 2020

See all articles by Kelley Bergsma

Kelley Bergsma

Ohio University

Andy Fodor

Ohio University

Vijay Singal

Virginia Tech

Jitendra Tayal

Ohio University

Date Written: September 30, 2020

Abstract

Prior literature finds information is reflected in option markets before stock markets using daily and weekly trading volume, but evidence is mixed at the intraday level. Using novel intraday signed option volume data, we develop a composite option trading score (OTS) and document its stock return predictability throughout the day. We find OTS in the first 30 minutes of market open predicts stock returns during the remainder of the trading day, where predictability is greater for stocks with higher transaction costs. Moreover, OTS is a significantly stronger predictor of intraday stock returns after overnight earnings news releases. The evidence suggests option trading in the 30 minutes after the opening bell has predictive power for intraday stock returns.

Keywords: Intraday trading; options; volume; stock return predictability; transaction costs; earnings news

JEL Classification: G12, G13, G14

Suggested Citation

Bergsma, Kelley and Fodor, Andy and Singal, Vijay and Tayal, Jitendra, Option Trading after the Opening Bell and Intraday Stock Return Predictability (September 30, 2020). Financial Management, 49(3), 769-804., Available at SSRN: https://ssrn.com/abstract=3095239 or http://dx.doi.org/10.2139/ssrn.3095239

Kelley Bergsma (Contact Author)

Ohio University ( email )

1 Ohio University
Athens, OH OH 45701
United States

Andy Fodor

Ohio University ( email )

514 Copeland Hall
Athens, OH 45701
United States
740.593.0259 (Phone)

Vijay Singal

Virginia Tech ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States
5402317750 (Phone)

Jitendra Tayal

Ohio University ( email )

Athens, OH 45701
United States

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