Stealth Trading In Options Markets

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. COPYRIGHT 2007, SCHOOL OF BUSINESS ADMINISTRATION.

Publication Date

1-1-2007

Publication Title

Journal of Financial and Quantitative Analysis

Volume

42

Issue

1

Number of Pages

167-188

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1017/s0022109000002234

Socpus ID

33947662041 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/33947662041

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