Informed Trading in Options Markets Surrounding Data Breaches

43 Pages Posted: 11 Nov 2019 Last revised: 14 Feb 2022

See all articles by Louis R. Piccotti

Louis R. Piccotti

Oklahoma State University - Stillwater - Spears School of Business

Heng Emily Wang

Le Moyne College, Madden School of Business

Date Written: December 1, 2021

Abstract

We explore whether there is informed trading, which takes advantage of data breach events. By analyzing transactions in the options market, we conjecture that there are two distinct informed trading patterns that likely begin approximately four months prior and from twelve months to eight months prior to corporate data-breach announcements, which are supported by evidence of higher trading volume and open interest for put options, a higher put-to-call volume ratio, a higher put-to-call open interest ratio, and lower spreads prior to data-breach announcements. We further examine stock reactions following data-breach announcements and find significantly negative CARs of -0.35% within one day. Cross-sectional analysis provides evidence that put-call ratios have predictive power for stock returns. We provide additional evidences such as possible trading strategies in stock markets and options markets.

Keywords: informed trading, cybersecurity, data breach, option market

JEL Classification: G13, G14, K24

Suggested Citation

Piccotti, Louis R. and Wang, Heng, Informed Trading in Options Markets Surrounding Data Breaches (December 1, 2021). Available at SSRN: https://ssrn.com/abstract=3478263 or http://dx.doi.org/10.2139/ssrn.3478263

Louis R. Piccotti (Contact Author)

Oklahoma State University - Stillwater - Spears School of Business ( email )

460 Business
Stillwater, OK 74078-0555
United States

Heng Wang

Le Moyne College, Madden School of Business ( email )

Syracuse, NY 13204
United States

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