The Role of Fleeting Orders on Options Expiration
51 Pages Posted: 19 Mar 2021
Date Written: March 15, 2021
We employ NASDAQ order level data to analyze intraday trading at option expirations and cross-market price pressure spillover. Algorithmic traders appear to place proportionately more fleeting orders in optionable stocks on option expiration versus non-expiration days. Since most observed fleeting orders are outside the NBBO, we discard the possibility that their purpose is to search for latent liquidity. Relation between NBBO proximity to strike prices and fleeting order direction implies they play a role in stock price clustering on option expiration days. We show that fleeting orders impact subsequent NBBO and that fleeting order direction is related to option Open Interest.
Keywords: Option expiration; manipulation; order dynamics; microstructure
JEL Classification: G12, G13, G14, G24
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