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

Posted: 4 Dec 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: November 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. We also find that 14% to 28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives these jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public news releases. Interestingly, illiquidity does not drive jumps in the S&P 500 index options market, where we also find sizable and idiosyncratic price jumps.

Keywords: Asymmetric information, co-jump, limit order book market, liquidity, option market, news announcement

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 Options Market (November 2019). Journal of Financial Markets, Vol. 46, 2019. Available at SSRN: https://ssrn.com/abstract=3489398

George Kapetanios

King's College, London ( email )

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

Eirini Konstantinidi (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Michael Neumann

Independent ( email )

No Address Available

George Skiadopoulos

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/

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
81
PlumX Metrics