Stealth trading in options markets

    Authors

    A. Anand;S. Chakravarty

    Comments

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    Abbreviated Journal Title

    J. Financ. Quant. Anal.

    Keywords

    STOCK-PRICES; EQUITY OPTIONS; VOLUME; INFORMATION; TRADES; VOLATILITY; DISCOVERY; LIQUIDITY; SIZE; Business, Finance; Economics

    Abstract

    We investigate how price discovery occurs in the options markets through traders' trade size choice. By employing transactions data on all options traded on a sample of 100 firms, we show that informed traders fragment their orders into small (medium) trades for low (high) volume contracts. We also find that almost 60% of the price discovery occurs in the exchange with the largest market share for a given option, where informed traders favor medium size trades. Upon examining distinct option series for a given stock, we find that at-the-money calls display the highest information share.

    Journal Title

    Journal of Financial and Quantitative Analysis

    Volume

    42

    Issue/Number

    1

    Publication Date

    1-1-2007

    Document Type

    Article

    Language

    English

    First Page

    167

    Last Page

    187

    WOS Identifier

    WOS:000244843900007

    ISSN

    0022-1090

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