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Option trading and returns versus the 52‐week high and low

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  • Siu Kai Choy
  • Jason Wei

Abstract

We show that option traders suffer from the anchoring effect induced by the stock price's 52‐week high or low. Specifically, (1) trading of all options decreases as the stock price approaches its 52‐week high or low, (2) the buy–sell imbalance for calls decreases and that for puts increases as the stock price approaches its 52‐week high, and the opposite occurs as the stock price approaches its 52‐week low, and (3) the subsequent delta‐hedged option returns for both calls and puts are higher as the stock price approaches its 52‐week extreme.

Suggested Citation

  • Siu Kai Choy & Jason Wei, 2022. "Option trading and returns versus the 52‐week high and low," The Financial Review, Eastern Finance Association, vol. 57(3), pages 691-726, August.
    • Handle: RePEc:bla:finrev:v:57:y:2022:i:3:p:691-726
    DOI: 10.1111/fire.12310
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    References listed on IDEAS

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