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Stock returns on option expiration dates: Price impact of liquidity trading

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  • Chiang, Chin-Han

Abstract

This paper documents striking evidence that stocks with a sufficiently large amount of deeply in-the-money call options experience a significant return drop of 0.8 percentage point on option expiration dates; this price movement is then followed by a short-term reversal. We attribute the negative returns to the selling pressure from call option buyers who exercise deeply in-the-money calls and sell the acquired stocks immediately. This selling pressure is offset neither by parallel option writers' purchases nor by put option rebalancing on the opposite end.

Suggested Citation

  • Chiang, Chin-Han, 2014. "Stock returns on option expiration dates: Price impact of liquidity trading," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 273-290.
    • Handle: RePEc:eee:empfin:v:28:y:2014:i:c:p:273-290
    DOI: 10.1016/j.jempfin.2014.03.003
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    2. Dian‐Xuan Kao & Wei‐Che Tsai & Yaw‐Huei Wang & Kuang‐Chieh Yen, 2018. "An analysis on the intraday trading activity of VIX derivatives," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(2), pages 158-174, February.
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