Acrobat X Files

Home > Business and Economy > Option Trading

Does Option Trading Impact Underlying Stock Prices

Sort Desciption:

Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? ... substantial and pervasive influence of option trading on stock prices. ...

Content Inside:

Does Option Trading Impact Underlying Stock PricesPage 1Does Option Trading Have a Pervasive Impact on Underlying Stock Prices?*Neil D. Pearson University of Illinois at UrbanaChampaign Allen M. Poteshman University of Illinois at UrbanaChampaign Joshua White University of Illinois at UrbanaChampaign July 31 2006**Preliminary and Incomplete: Please do not quote or circulate. *Department of Finance College of Business University of Illinois at UrbanaChampaign 340 Wohlers Hall 1206 South Sixth Street Champaign IL 61820 (Phone: (217) 2440490 email: pearson2@uiuc.edu; phone: (217) 2650565 email: poteshma@uiuc.edu; and phone: (217) 2441166 email: jswhite@uiuc.edu.) We thank Joe Levin Eileen Smith and Dick Thaler for assistance with the data used in this paper. Qian Deng provided excellentresearch assistance. We bear full responsibility for any remaining errors. Page 2Does Option Trading Have a Pervasive Impact on Underlying Stock Prices? ABSTRACT The question of whether and to what extent option trading impacts underlying stock prices has been a focus of intense interest since options began exchangebased trading in 1973. Despite considerable effort no convincing evidence for a pervasive impact has been produced. A recent strand of theoretical literature predicts that rebalancing by traders who hedge their option positions increases (decreases) underlying stock return volatility when these traders have net written (purchased) option positions. This paper tests this prediction and finds a statistically and economically significant negative relationship between stock return volatility and net purchased option positions of investors who are likely to hedge. Hence we provide the first evidence for a substantial and pervasive influence of option trading on stock prices. Page 31. Introduction Ever since individual equity options began trading in 1973 investors exchange officials and regulators have been concerned that underlying stock prices would be impacted.1Despite ...

Source: weatherhead.case.edu

 

Related Files

An Investors Guide to Trading Options - Book Review

Filed under: Business and Economy and Option Trading
... put this book into circulation, as it will have a long life with investors. Gail Osten is executive editor of SFO magazine Bite-Sized Topics in the Guide What Is an Option Anyway? How Does Option Trading ...

Volatility Forecasting and DeltaNeutral Volatility Trading for ...

Filed under: Business and Economy and Option Trading
we evaluate profits from options trading for rival volatility ... tions on the DTB DAX option trading were carried out by the second named author ...

THE VALUE LINE Guide to Option Strategies

Filed under: Business and Economy and Option Trading
The Value Line Guide to Option Strategies - Page 5 Preface - Options & the Value Line Daily Options Survey Option trading, as we know it, began in 1973. That was the year when Fischer Black and Myron ...

An Investors Guide to Trading Options - Sample Pages

Filed under: Business and Economy and Option Trading
TYPES OF OPTIONS CONTRACTS Calls Puts What Is an Option? An option is a contract to buy or sell a specifi c fi nancial product offi cially known as the options underlying instrument or underlying ...

An Investor Guide to the Stock Option Timing Scandal

Filed under: Business and Economy and Option Trading
... used herein under license. Rev., July 2006. An Investor Guide to the Stock Option Timing ... company retroactively sets the exercise price for a stock option to an earlier date. If the stock was trading at a ...