This paper investigates the behavior of investors in the equity option market using a unique and detailed dataset of open interest and volume for all contracts listed on the Chicago Board Options Exchange over the 1990 through 2001 period. We document major stylized facts about the option market activity of three types of non-market maker investors over this time period and also investigate how their trading changed during the stock market bubble of the late 1990s and early 2000. Our key findings are: (1) non-market maker investors have about four times more long call than long put open interest, (2) these investors have more short than long open interest in both calls and puts, (3) each type of investor purchases more calls to open brand new positions when the return on underlying stocks are higher over horizons ranging from one week to two years into the past, (4) the least sophisticated group of investors substantially increased their purchases of calls on growth but not value stocks during the stock market bubble of the late 1990s and early 2000, and (5) none of the investor groups significantly increased their purchases of puts during the bubble period in order to overcome short sales constraints in the stock market.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
10264.
Length: Date of creation: Feb 2004 Date of revision: Handle: RePEc:nbr:nberwo:10264
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Barberis, Nicholas & Shleifer, Andrei, 2003.
"Style investing,"
Journal of Financial Economics,
Elsevier, vol. 68(2), pages 161-199, May.
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Nicholas Barberis & Andrei Shleifer, 2000.
"Style Investing,"
NBER Working Papers
8039, National Bureau of Economic Research, Inc.
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