Bid-ask Spreads and Trading Activity in American Equity Options Markets PDF Download
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Author: Lars Nordén
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
Author: Lars Nordén
Publisher:
ISBN:
Category :
Languages : en
Pages : 32
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Book Description
Author: United States. Securities and Exchange Commission. Special Study of the Options Markets
Publisher:
ISBN:
Category : Options (Finance)
Languages : en
Pages : 1104
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Book Description
Author: Young-Hye Cho
Publisher:
ISBN:
Category : Hedging (Finance)
Languages : en
Pages : 56
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Book Description
In this paper, we examine the impact of market activity on the percentage bid-ask spreads of S & P 100 index options using transactions data. We propose a new market microstructure theory which we call derivative hedge theory, in which option market percentage spreads will be inversely related to the option market maker's ability to hedge his positions in the underlying market, as measured by the liquidity of the latter market. In a perfect hedge world, spreads arise from the illiquidity of the underlying market, rather than from inventory risk or informed trading in the option market itself. We find option market volume is not a significant determinant of option market spreads. This finding leads us to question the use of volume as a measure of liquidity and supports the derivative hedge theory. Option market spreads are positively related to spreads in the underlying market, again supporting our theory. However, option market duration does affect option market spreads, with very slow and very fast option markets both leading to bigger spreads. The fast market result would be predicted by the asymmetric information theory. Inventory model predicts big spreads in slow markets. Neither result would be observed if the underlying securities market provided a perfect hedge. We interpret these mixed results as meaning that the option market maker is able to only imperfectly hedge his positions in the underlying securities market. Our result of insignificant options volume casts doubt on the price discovery argument between stock and option market (Easley, O'Hara, and Srinivas (1998)). Asymmetric information costs in either market are naturally passed to the other market maker's hedgeing and therefore it is unimportant where the informed traders trade.
Author: Deniz Ozenbas
Publisher: Springer Nature
ISBN: 3030748170
Category : Business enterprises
Languages : en
Pages : 111
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Book Description
This open access book addresses four standard business school subjects: microeconomics, macroeconomics, finance and information systems as they relate to trading, liquidity, and market structure. It provides a detailed examination of the impact of trading costs and other impediments of trading that the authors call rictions It also presents an interactive simulation model of equity market trading, TraderEx, that enables students to implement trading decisions in different market scenarios and structures. Addressing these topics shines a bright light on how a real-world financial market operates, and the simulation provides students with an experiential learning opportunity that is informative and fun. Each of the chapters is designed so that it can be used as a stand-alone module in an existing economics, finance, or information science course. Instructor resources such as discussion questions, Powerpoint slides and TraderEx exercises are available online.
Author: Young-Hye Cho
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
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Book Description
In this paper, we examine the impact of market activity on the percentage bid-ask spreads of Samp;P 100 index options using transactions data. We propose a new market microstructure theory which we call derivative hedge theory, in which option market percentage spreads will be inversely related to the option market maker's ability to hedge his positions in the underlying market, as measured by the liquidity of the latter market. In a perfect hedge world, spreads arise from the illiquidity of the underlying market, rather than from inventory risk or informed trading in the option market itself. We find option market volume is not a significant determinant of option market spreads. This finding leads us to question the use of volume as a measure of liquidity and supports the derivative hedge theory. Option market spreads are positively related to spreads in the underlying market, again supporting our theory. However, option market duration does affect option market spreads, with very slow and very fast option markets both leading to bigger spreads. The fast market result would be predicted by the asymmetric information theory. Inventory model predicts big spreads in slow markets. Neither result would be observed if the underlying securities market provided a perfect hedge. We interpret these mixed results as meaning that the option market maker is able to only imperfectly hedge his positions in the underlying securities market. Our result of insignificant options volume casts doubt on the price discovery argument between stock and option market (Easley, O'Hara, and Srinivas (1998)). Asymmetric information costs in either market are naturally passed to the other market maker's hedgeing and therefore it is unimportant where the informed traders trade.
Author: Joseph A. Walker
Publisher: Prentice Hall Press
ISBN:
Category : Business & Economics
Languages : en
Pages : 248
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Book Description
Guides to the ins-and-outs of options and the options markets. Introduces the basics and the aspects of options trading.
Author: Hans R. Stoll
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 88
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Book Description
Author: Rafiqul Bhuyan
Publisher:
ISBN:
Category :
Languages : en
Pages : 43
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Book Description
In this paper, we use daily closing data on CBOE options of 30 stocks during February through July of 1999 to investigate whether options open interest contains information that can be used for trading purposes. Individual stock price at option maturity is first predicted based on the distribution of options open interest. Several stock only and stock plus options directional trading strategies are then considered after comparing the predicted stock price at maturity and the actual stock price at the trade initiation date. In our sample, these trading strategies generate better returns compared to the Samp;P 500, the buy and hold strategy involving the sample stocks and the Merton et al (1978) style covered call strategy. Our empirical evidence thus indicates that non-price measures of activity in the derivatives market such as the open interest contain information about the future level of the underlying asset. This lends support to prior works (such as Copeland and Galai (1983), and Easley et al (1998)) that suggest that the derivatives cannot be considered redundant in a market with information-related frictions. One implication is that the distribution of non-price derivatives market activity may be helpful for other purposes where the physical instead of the risk-neutral distribution of the underlying asset is needed. These include beta estimation, volatility forecasting and volatility trading.
Author: Sereno Stansbury Pratt
Publisher:
ISBN:
Category : Securities industry
Languages : en
Pages : 322
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Book Description
Author: Robert A. Schwartz
Publisher: Springer
ISBN: 3030028712
Category : Business & Economics
Languages : en
Pages : 102
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Book Description
This book explores the integrity of equity markets, addressing such issues as the exchange vs. customer perspective on price discovery and the ways market participants deal with key regulatory concerns. Do market practitioners pass the integrity test? How does “market integrity” play out globally? What is the overall veracity of the marketplace? These are some of the key questions considered in this volume from the viewpoints of traders, economists, financial market strategists and exchange representative. Titled after the Baruch College Financial Markets Conference, Market Integrity: Do Our Equity Markets Pass the Test?, this book is of interest to market practitioners, trading professionals, academics and students in the field of financial markets. The Zicklin School of Business Financial Markets Series presents the insights emerging from a sequence of conferences hosted by the Zicklin School at Baruch College for industry professionals, regulators and scholars. Much more than historical documents, the transcripts from the conferences are edited for clarity, perspective and context; material and comments from subsequent interviews with the panelists and speakers are integrated for a complete thematic presentation. Each book is focused on a well-delineated topic, but all deliver broader insights into the quality and efficiency of the U.S. equity markets and the dynamic forces changing them.
