Informed Options Trading Before Corporate Events

Annual Review of Financial Economics, Forthcoming

Posted: 24 Apr 2020

See all articles by Patrick Augustin

Patrick Augustin

McGill University, Desautels Faculty of Management

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Date Written: March 29, 2020

Abstract

There is sufficient evidence in the popular, legal, and financial literature that informed options trading ahead of scheduled and unexpected corporate events is pervasive. In this review, we piece together the extant evidence on this topic into a cohesive picture, which includes abnormal activity ahead of announcements of earnings, mergers and acquisitions, as well as numerous other corporate events. We also discuss the more limited evidence on informed trading in other derivatives markets, such as credit default swaps (CDSs). In addition, we characterize the impact and features of illegal insider trading, and insider trading networks. We also provide a brief overview of the legal framework in the U.S. concerning legal and illegal insider trading, in order to emphasize the challenges associated with identifying informed options trading. We end with our suggestions regarding future research opportunities in this broad topic.

Keywords: Civil Litigations, Derivatives, Information, Insider Trading, Mergers and Acquisitions, Options, Regulation

Suggested Citation

Augustin, Patrick and Subrahmanyam, Marti G., Informed Options Trading Before Corporate Events (March 29, 2020). Annual Review of Financial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3563824

Patrick Augustin (Contact Author)

McGill University, Desautels Faculty of Management ( email )

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Marti G. Subrahmanyam

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

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

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