Net Buying Pressure and Informed Trading in the Options Market: Evidence From Earnings Announcements
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Authors
Badshah, I
Koerniadi, H
Supervisor
Item type
Journal Article
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Journal Title
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Publisher
MDPI AG
Abstract
By employing the modified net buying pressure as a measure of informed option trading, this study tested whether option trading around quarterly earnings announcements is either directionally motivated and/or volatility motivated. We found evidence that is consistent with the idea that option investors have private information prior to positive earnings announcements and use at-the-money options to exploit their informational advantage. In the post-event period, however, informed option investors trade by using deep-out-of-the-money and out-of-the-money options. We documented limited evidence on the volatility-motivated option trading, and our results suggest that this type of option trading could be motivated by hedging purposes only.Description
Keywords
Earnings; Announcements; Options; Informed trading; Net buying pressure; Volatility; Direction; At-the-money; Out-of-the-money; Deep-out-of-the-money
Source
Journal of Risk and Financial Management, 15(2), 53. https://doi.org/10.3390/jrfm15020053
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© 2022 by the authors.
Licensee MDPI, Basel, Switzerland.
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distributed under the terms and
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Attribution (CC BY) license (https://
creativecommons.org/licenses/by/
4.0/).