Informed Options Trading Before Fda Drug Advisory Committee Meetings

54 Pages Posted: 13 Apr 2021

See all articles by Zekun Wu

Zekun Wu

University of Connecticut

Paul Borochin

University of Miami - Department of Finance

Joseph H. Golec

University of Connecticut - Department of Finance

Date Written: April 12, 2021

Abstract

The Food and Drug Administration uses committees of experts to evaluate potential new drugs. Weeks before they meet, the experts receive nonpublic reports from drug firms and FDA staff. We find significant abnormal options trading before meeting dates and report creation dates, particularly for small firms. Abnormal volume significantly predicts post-meeting stock returns. Informed traders prefer out-of-the-money options, and choose maturities to cover the dates when reports are publicly released. They prefer to sell options close to the meeting date, perhaps to capture returns from both expected stock price changes and the sharp drop in implied volatility following the meetings.

Keywords: FDA; Informed Trading; Options;

JEL Classification: G14, I10, I18

Suggested Citation

Wu, Zekun and Borochin, Paul and Golec, Joseph, Informed Options Trading Before Fda Drug Advisory Committee Meetings (April 12, 2021). University of Miami Business School Research Paper No. 3825062, Available at SSRN: https://ssrn.com/abstract=3825062 or http://dx.doi.org/10.2139/ssrn.3825062

Zekun Wu

University of Connecticut ( email )

Storrs, CT
United States

Paul Borochin

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Joseph Golec (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

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