Does information drive trading in option strategies?
AbstractWe study trading in option strategies in the FTSE-100 index market. Trades in option strategies represent around 37% of the total number of trades and over 75% of the total trading volume in our sample. We find some evidence that order flow in volatility-sensitive option strategies contains information about future realized volatility. We do not find evidence that order flow in directionally-sensitive option strategies contains information about future returns. Overall, our evidence suggests that option strategies are used both by traders who possess non-public information about future volatility and by uninformed speculators who appear to follow unprofitable trend chasing strategies.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 34 (2010)
Issue (Month): 10 (October)
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Web page: http://www.elsevier.com/locate/jbf
Option strategies Option spreads Option combinations Volatility trading;
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