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Business Cycles and Net Buying Pressure in the S&P 500 Futures Options

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  • Kam C. Chan
  • Carl R. Chen
  • Peter P. Lung

Abstract

We analyse the cyclical behaviour and intraday pattern of net buying pressure in the S&P 500 futures options market. The results suggest that the net buying pressure of puts is counter†cyclical and is more intense during contraction periods. The trading profits for selling put options during contraction periods thus far exceed those during expansion periods. Net buying pressure also exhibits an intraday pattern. Trading profits in the early trading sessions are higher than those for the rest of the day. In addition, we show that hourly†basis hedging yields smaller profits than daily†basis hedging, which suggests that the trading profits based on daily†basis hedging may contain a risk premium associated with discretely rebalanced ‘risk†free’ option portfolios.

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  • Kam C. Chan & Carl R. Chen & Peter P. Lung, 2010. "Business Cycles and Net Buying Pressure in the S&P 500 Futures Options," European Financial Management, European Financial Management Association, vol. 16(4), pages 624-657, September.
    • Handle: RePEc:bla:eufman:v:16:y:2010:i:4:p:624-657
    DOI: 10.1111/j.1468-036X.2008.00477.x
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    3. Junmao Chiu & Huimin Chung & Keng-Yu Ho, 2014. "Fear Sentiment, Liquidity, and Trading Behavior: Evidence from the Index ETF Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 17(03), pages 1-25.
    4. Ron Bird & Harry Liem & Susan Thorp, 2014. "Infrastructure: Real Assets and Real Returns," European Financial Management, European Financial Management Association, vol. 20(4), pages 802-824, September.

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