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Short-term options: Clienteles, market segmentation, and event trading

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  • Chatrath, Arjun
  • Christie-David, Rohan A.
  • Miao, Hong
  • Ramchander, Sanjay

Abstract

We compare clientele and information share in weekly- (Weeklys) and monthly-expiring options (Monthlys) on the S&P 500 index. Striking dissimilarities between the two instruments are found, most apparent being the much smaller trade size and substantially higher implied volatility in Weeklys, consistent with both speculation and event trading. Additionally, the price discovery contribution of Weeklys, albeit modest when compared to the underlying index itself, is substantially larger than that of Monthlys. The cumulative evidence points to an increasingly segmented options market. Thus, studies employing only standard options to investigate price discovery will likely underestimate the informational role of options.

Suggested Citation

  • Chatrath, Arjun & Christie-David, Rohan A. & Miao, Hong & Ramchander, Sanjay, 2015. "Short-term options: Clienteles, market segmentation, and event trading," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 237-250.
    • Handle: RePEc:eee:jbfina:v:61:y:2015:i:c:p:237-250
    DOI: 10.1016/j.jbankfin.2015.09.001
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    2. Yossi Shvimer & Avi Herbon, 2022. "Non-tradability interval for heterogeneous rational players in the option markets," Computational Management Science, Springer, vol. 19(1), pages 133-157, January.

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    More about this item

    Keywords

    Weeklys; Monthlys; Greeks; Implied volatility; Spread; Price discovery;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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