When Trading Options is Not the Only Option: The Effects of Single-Stock Futures Trading on Options Market Quality

Jiang, G.J., Shimizu, Y. and Strong, C., 2020. When trading options is not the only option: The effects of single‐stock futures trading on options market quality. Journal of Futures Markets.

38 Pages Posted: 17 Jul 2019 Last revised: 7 Oct 2021

See all articles by George J. Jiang

George J. Jiang

Washington State University

Yoshiki Shimizu

University of Minnesota - Duluth

Cuyler Strong

U.S. Securities and Exchange Commission

Date Written: June 1, 2019

Abstract

The literature documents that the short-selling ban during the financial crisis led to a significant deterioration of options market quality. We examine the impact of single-stock futures (SSFs) trading on options market quality during the short-selling ban period. We show that there is a substitution effect between options trading and SSFs trading during the ban period and SSFs trading fails to complement the trading of put options. Nevertheless, our results show that SSFs trading had a significant effect in narrowing the bid-ask spreads of options contracts. Moreover, compared to stocks without SSFs, stocks with SSFs were less likely to violate put-call parity during the ban period. Our results suggest that SSFs trading helps mitigate the negative effect of the short-selling ban on options market quality.

Keywords: Short Selling Ban, Financial Crisis, Single-Stock Futures, Options Market Quality

JEL Classification: G01, G14

Suggested Citation

Jiang, George and Shimizu, Yoshiki and Strong, Cuyler, When Trading Options is Not the Only Option: The Effects of Single-Stock Futures Trading on Options Market Quality (June 1, 2019). Jiang, G.J., Shimizu, Y. and Strong, C., 2020. When trading options is not the only option: The effects of single‐stock futures trading on options market quality. Journal of Futures Markets., Available at SSRN: https://ssrn.com/abstract=3420443 or http://dx.doi.org/10.2139/ssrn.3420443

George Jiang (Contact Author)

Washington State University ( email )

Department of Finance and Management Science
Carson College of Business
Pullman, WA 99-4746164
United States
509-3354474 (Phone)

HOME PAGE: http://directory.business.wsu.edu/bio.html?username=george.jiang

Yoshiki Shimizu

University of Minnesota - Duluth ( email )

1049 University Drive
Duluth, MN 55812
United States

Cuyler Strong

U.S. Securities and Exchange Commission ( email )

Washington, DC

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