IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v23y2023i10p1511-1529.html
   My bibliography  Save this article

The role of fleeting orders on option expiration days

Author

Listed:
  • Antonio Figueiredo
  • Pankaj Jain
  • Suchismita Mishra

Abstract

We employ NASDAQ order level data to analyze intraday trading at option expirations and cross-market price pressure spillover. We observe more fleeting orders in optionable stocks on option expiration versus non-expiration days. The relation between NBBO proximity to strike prices and fleeting order direction, the relation between option Open Interest and fleeting order direction, as well as their placement outside NBBO suggest spoofing and price manipulation rather than a simple search for latent liquidity. We show that fleeting orders impact subsequent NBBO and increase likelihood of stock prices crossing option strike prices on option expiration days.

Suggested Citation

  • Antonio Figueiredo & Pankaj Jain & Suchismita Mishra, 2023. "The role of fleeting orders on option expiration days," Quantitative Finance, Taylor & Francis Journals, vol. 23(10), pages 1511-1529, October.
    • Handle: RePEc:taf:quantf:v:23:y:2023:i:10:p:1511-1529
    DOI: 10.1080/14697688.2023.2229375
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14697688.2023.2229375
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14697688.2023.2229375?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Liyan Yang & Haoxiang Zhu, 2020. "Back-Running: Seeking and Hiding Fundamental Information in Order Flows," Review of Finance, European Finance Association, vol. 33(4), pages 1484-1533.
    2. Friederich, Sylvain & Payne, Richard, 2015. "Order-to-trade ratios and market liquidity," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 214-223.
    3. Andriy Shkilko & Konstantin Sokolov, 2020. "Every Cloud Has a Silver Lining: Fast Trading, Microwave Connectivity, and Trading Costs," Journal of Finance, American Finance Association, vol. 75(6), pages 2899-2927, December.
    4. Rama Cont & Arseniy Kukanov & Sasha Stoikov, 2014. "The Price Impact of Order Book Events," Journal of Financial Econometrics, Oxford University Press, vol. 12(1), pages 47-88.
    5. Dmitriy Muravyev & Neil D Pearson & Stijn Van Nieuwerburgh, 2020. "Options Trading Costs Are Lower than You Think," The Review of Financial Studies, Society for Financial Studies, vol. 33(11), pages 4973-5014.
    6. Hautsch, Nikolaus & Huang, Ruihong, 2012. "The market impact of a limit order," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 501-522.
    7. Kumar, Praveen & Seppi, Duane J, 1992. "Futures Manipulation with "Cash Settlement."," Journal of Finance, American Finance Association, vol. 47(4), pages 1485-1502, September.
    8. Todd G Griffith & Robert A Van Ness, 2020. "Order Cancellations, Fees, and Execution Quality in U.S. Equity Options," Review of Finance, European Finance Association, vol. 33(4), pages 1534-1564.
    9. Jonathan Brogaard & Terrence Hendershott & Ryan Riordan, 2019. "Price Discovery without Trading: Evidence from Limit Orders," Journal of Finance, American Finance Association, vol. 74(4), pages 1621-1658, August.
    10. Craig W. Holden & Stacey Jacobsen, 2014. "Liquidity Measurement Problems in Fast, Competitive Markets: Expensive and Cheap Solutions," Journal of Finance, American Finance Association, vol. 69(4), pages 1747-1785, August.
    11. Pool, Veronika Krepely & Stoll, Hans R. & Whaley, Robert E., 2008. "Failure to exercise call options: An anomaly and a trading game," Journal of Financial Markets, Elsevier, vol. 11(1), pages 1-35, February.
    12. Allen M. Poteshman & Vitaly Serbin, 2003. "Clearly Irrational Financial Market Behavior: Evidence from the Early Exercise of Exchange Traded Stock Options," Journal of Finance, American Finance Association, vol. 58(1), pages 37-70, February.
    13. Josef Lakonishok & Inmoo Lee & Neil D. Pearson & Allen M. Poteshman, 2007. "Option Market Activity," The Review of Financial Studies, Society for Financial Studies, vol. 20(3), pages 813-857.
    14. Muravyev, Dmitriy & Pearson, Neil D. & Paul Broussard, John, 2013. "Is there price discovery in equity options?," Journal of Financial Economics, Elsevier, vol. 107(2), pages 259-283.
    15. Xiaoyan Ni, Sophie & Pearson, Neil D. & Poteshman, Allen M., 2005. "Stock price clustering on option expiration dates," Journal of Financial Economics, Elsevier, vol. 78(1), pages 49-87, October.
    16. Lee, Charles M C & Ready, Mark J, 1991. "Inferring Trade Direction from Intraday Data," Journal of Finance, American Finance Association, vol. 46(2), pages 733-746, June.
    17. Chaoshin Chiao & Zi‐May Wang, 2009. "Price Clustering: Evidence Using Comprehensive Limit‐Order Data," The Financial Review, Eastern Finance Association, vol. 44(1), pages 1-29, February.
    18. Hasbrouck, Joel & Saar, Gideon, 2009. "Technology and liquidity provision: The blurring of traditional definitions," Journal of Financial Markets, Elsevier, vol. 12(2), pages 143-172, May.
    19. Todd G Griffith & Robert A Van Ness, 2020. "Order Cancellations, Fees, and Execution Quality in U.S. Equity Options," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1534-1564.
    20. Hillion, Pierre & Suominen, Matti, 2004. "The manipulation of closing prices," Journal of Financial Markets, Elsevier, vol. 7(4), pages 351-375, October.
    21. Zoltán Eisler & Jean-Philippe Bouchaud & Julien Kockelkoren, 2012. "The price impact of order book events: market orders, limit orders and cancellations," Quantitative Finance, Taylor & Francis Journals, vol. 12(9), pages 1395-1419, September.
    22. Bessembinder, Hendrik & Panayides, Marios & Venkataraman, Kumar, 2009. "Hidden liquidity: An analysis of order exposure strategies in electronic stock markets," Journal of Financial Economics, Elsevier, vol. 94(3), pages 361-383, December.
    23. Comerton-Forde, Carole & Putnins, Talis J., 2011. "Measuring closing price manipulation," Journal of Financial Intermediation, Elsevier, vol. 20(2), pages 135-158, April.
    24. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    25. Liyan Yang & Haoxiang Zhu, 2020. "Back-Running: Seeking and Hiding Fundamental Information in Order Flows," The Review of Financial Studies, Society for Financial Studies, vol. 33(4), pages 1484-1533.
    26. Hoffmann, Peter, 2014. "A dynamic limit order market with fast and slow traders," Journal of Financial Economics, Elsevier, vol. 113(1), pages 156-169.
    27. Tālis J. Putniņš, 2012. "Market Manipulation: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 952-967, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nimalendran, Mahendrarajah & Rzayev, Khaladdin & Sagade, Satchit, 2024. "High-frequency trading in the stock market and the costs of options market making," LSE Research Online Documents on Economics 124228, London School of Economics and Political Science, LSE Library.
    2. Nimalendran, Mahendrarajah & Rzayev, Khaladdin & Sagade, Satchit, 2024. "High-frequency trading in the stock market and the costs of options market making," Journal of Financial Economics, Elsevier, vol. 159(C).
    3. Nikolsko-Rzhevska, Olena & Nikolsko-Rzhevskyy, Alex & Black, Jeffrey R., 2020. "The life of U’s: Order revisions on NASDAQ," Journal of Banking & Finance, Elsevier, vol. 111(C).
    4. Hu, Jianfeng, 2014. "Does option trading convey stock price information?," Journal of Financial Economics, Elsevier, vol. 111(3), pages 625-645.
    5. Hayashi, Takaki & Nishide, Katsumasa, 2024. "Strategic liquidity provision in high-frequency trading," International Review of Financial Analysis, Elsevier, vol. 93(C).
    6. Atanasov, Vladimir & Davies, Ryan J. & Merrick, John J., 2015. "Financial intermediaries in the midst of market manipulation: Did they protect the fool or help the knave?," Journal of Corporate Finance, Elsevier, vol. 34(C), pages 210-234.
    7. Bongaerts, Dion & Achter, Mark Van, 2021. "Competition among liquidity providers with access to high-frequency trading technology," Journal of Financial Economics, Elsevier, vol. 140(1), pages 220-249.
    8. Tālis J. Putniņš, 2012. "Market Manipulation: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 26(5), pages 952-967, December.
    9. Tripathi, Abhinava & Dixit, Alok & Vipul,, 2021. "Information content of order imbalance in an order-driven market: Indian Evidence," Finance Research Letters, Elsevier, vol. 41(C).
    10. Pham, Manh Cuong & Anderson, Heather Margot & Duong, Huu Nhan & Lajbcygier, Paul, 2020. "The effects of trade size and market depth on immediate price impact in a limit order book market," Journal of Economic Dynamics and Control, Elsevier, vol. 120(C).
    11. Baldauf, Markus & Mollner, Joshua, 2022. "Fast traders make a quick buck: The role of speed in liquidity provision," Journal of Financial Markets, Elsevier, vol. 58(C).
    12. Hauser, Shmuel & Kedar-Levy, Haim & Milo, Orit, 2022. "Price discovery during parallel stocks and options preopening: Information distortion and hints of manipulation," Journal of Financial Markets, Elsevier, vol. 59(PA).
    13. Huh, Sahn-Wook & Lin, Hao & Mello, Antonio S., 2015. "Options market makers׳ hedging and informed trading: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 23(C), pages 26-58.
    14. Hagströmer, Björn, 2021. "Bias in the effective bid-ask spread," Journal of Financial Economics, Elsevier, vol. 142(1), pages 314-337.
    15. Itzhak Ben‐David & Francesco Franzoni & Augustin Landier & Rabih Moussawi, 2013. "Do Hedge Funds Manipulate Stock Prices?," Journal of Finance, American Finance Association, vol. 68(6), pages 2383-2434, December.
    16. Sagade, Satchit & Scharnowski, Stefan & Westheide, Christian, 2022. "Broker colocation and the execution costs of customer and proprietary orders," SAFE Working Paper Series 366, Leibniz Institute for Financial Research SAFE.
    17. Olivier Guéant, 2016. "The Financial Mathematics of Market Liquidity: From Optimal Execution to Market Making," Post-Print hal-01393136, HAL.
    18. Robert Jarrow & Scott Fung & Shih-Chuan Tsai, 2018. "An empirical investigation of large trader market manipulation in derivatives markets," Review of Derivatives Research, Springer, vol. 21(3), pages 331-374, October.
    19. Onur, Esen & Roberts, John S. & Tuzun, Tugkan, 2023. "Trader positions and aggregate portfolio demand," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    20. Esen Onur & David Reiffen, 2018. "The effect of settlement rules on the incentive to Bang the Close," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(8), pages 841-864, August.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:23:y:2023:i:10:p:1511-1529. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.