Be on Your Guard: 7DTE Options Markets and Safety Related Small Maturity Phenomena in Bond and Stock Markets

63 Pages Posted: 10 Dec 2024

See all articles by Gurdip Bakshi

Gurdip Bakshi

Temple University-Fox School of Business

John Crosby

University of Maryland - Robert H. Smith School of Business

Xiaohui Gao

Temple University-Fox School of Business

Jorge Wolfgang Hansen

Aarhus University - Department of Economics and Business Economics; Aarhus University; Danish Finance Institute (DFI)

Date Written: March 05, 2024

Abstract

To analyze small maturity phenomena related to safety in stock and bond markets, we develop a model to explain observable patterns: a positive correlation between the returns of 7DTE out-of-the-money (OTM) Treasury bond futures calls and S&P 500 stock puts, no correlation between the returns of 7DTE OTM bond puts and stock calls, and a decrease in the VVIX/VIX ratio during times of market stress. The estimated model is based on a theory of bivariate jump distributions for the bond's upside (downside) and the stock's downside (upside) and is validated empirically by 7DTE findings that encompass 22 variables.

Keywords: Matched weekly (7DTE) options on S&P 500 index and 7DTE options on Treasury bond futures, bivariate jump distributions, stochastic jump intensity rates, estimated models

Suggested Citation

Bakshi, Gurdip S. and Crosby, John and Gao, Xiaohui and Hansen, Jorge Wolfgang, Be on Your Guard: 7DTE Options Markets and Safety Related Small Maturity Phenomena in Bond and Stock Markets (March 05, 2024). Available at SSRN: https://ssrn.com/abstract=4986866 or http://dx.doi.org/10.2139/ssrn.4986866

Gurdip S. Bakshi

Temple University-Fox School of Business ( email )

PA 19122
United States

John Crosby

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
+447979901892 (Phone)

HOME PAGE: http://www.john-crosby.co.uk/

Xiaohui Gao (Contact Author)

Temple University-Fox School of Business ( email )

PA 19122
United States

Jorge Wolfgang Hansen

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Danish Finance Institute (DFI) ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
58
Abstract Views
232
Rank
740,091
PlumX Metrics