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Net Buying Pressure and Option Informed Trading

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  • Chao‐Chun Chen
  • Shih‐Hua Wang

Abstract

To differentiate between the effects of volatility trading and direction trading on an option market, this study decomposes net buying pressure of options into volatility‐motivated demand and direction‐motivated demand and examines their information content accordingly. With the two proposed measures, we find that changes in implied volatility of TAIEX OTM put options are driven by both volatility trading and directional trading over the sample period before the onset of the 2011 U.S. debt‐ceiling crisis, though the volatility trading effect is less than the directional trading effect. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:238–259, 2017

Suggested Citation

  • Chao‐Chun Chen & Shih‐Hua Wang, 2017. "Net Buying Pressure and Option Informed Trading," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 37(3), pages 238-259, March.
    • Handle: RePEc:wly:jfutmk:v:37:y:2017:i:3:p:238-259
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    Cited by:

    1. Doojin Ryu & Doowon Ryu & Heejin Yang, 2021. "The impact of net buying pressure on index options prices," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(1), pages 27-45, January.
    2. Alexander, Carol & Deng, Jun & Feng, Jianfen & Wan, Huning, 2023. "Net buying pressure and the information in bitcoin option trades," Journal of Financial Markets, Elsevier, vol. 63(C).
    3. Lee, Jaeram & Ryu, Doojin & Yang, Heejin, 2021. "Does vega-neutral options trading contain information?," Journal of Empirical Finance, Elsevier, vol. 62(C), pages 294-314.
    4. Doojin Ryu & Jinyoung Yu, 2021. "Informed options trading around holidays," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(5), pages 658-685, May.
    5. Carol Alexander & Jun Deng & Jianfen Feng & Huning Wan, 2021. "Net Buying Pressure and the Information in Bitcoin Option Trades," Papers 2109.02776, arXiv.org, revised Mar 2022.
    6. Shailesh Rastogi & Chaitaly Athaley, 2019. "Volatility Integration in Spot, Futures and Options Markets: A Regulatory Perspective," JRFM, MDPI, vol. 12(2), pages 1-15, June.
    7. Kelley Bergsma & Vivien Csapi & Dean Diavatopoulos & Andy Fodor, 2020. "Show me the money: Option moneyness concentration and future stock returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(5), pages 761-775, May.

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