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The Information Content of Insider Call Options Trading

Author

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  • Robert Chen
  • Xinlei Zhao

Abstract

We examine the information content of two forms of insider trading, insider buy-, and sell-call transactions. We find that the information carried by stand-alone call purchases has only a short term impact on stock prices, but over a longer term, call purchases accompanied by stock purchases have a positive impact. Call purchases accompanied by stock sales signal negative information about the firm, suggesting that some insiders use complicated trading strategies to manipulate the market. Insider sell-call transactions are followed by negative returns, indicating these transactions are driven by negative information about the firm.

Suggested Citation

  • Robert Chen & Xinlei Zhao, 2005. "The Information Content of Insider Call Options Trading," Financial Management, Financial Management Association, vol. 34(2), Summer.
    • Handle: RePEc:fma:fmanag:chenzhao05
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    Cited by:

    1. Yangyang Chen & Jeffrey Ng & Xin Yang, 2021. "Talk Less, Learn More: Strategic Disclosure in Response to Managerial Learning from the Options Market," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1609-1649, December.
    2. Michael R. King, 2009. "Prebid Run‐Ups Ahead of Canadian Takeovers: How Big Is the Problem?," Financial Management, Financial Management Association International, vol. 38(4), pages 699-726, December.
    3. Lin, Zih-Ying & Chang, Chuang-Chang & Wang, Yaw-Huei, 2018. "The impacts of asymmetric information and short sales on the illiquidity risk premium in the stock option market," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 152-165.

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