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Options resilience during extreme volatility: Evidence from the market events of May 2010

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  • Cakici, Nusret
  • Goswami, Gautam
  • Tan, Sinan

Abstract

Using intraday trades and quotes data, we study the stock options market before, during, and after the market events of May 6, 2010. Focusing on the S&P 500 and S&P 100 stock options, we explore if the options market provided any discernible signals that forewarned the extreme volatility on that day and whether the recovery was fast and without a permanent impact. We find that the options market reacted to the volatility- rather than predicting it, and almost all of the variables are indistinguishable from their previous levels in the next few trading days. Intraday empirical analysis suggests that most of the impact was over within a few hours from the peak of market volatility.

Suggested Citation

  • Cakici, Nusret & Goswami, Gautam & Tan, Sinan, 2014. "Options resilience during extreme volatility: Evidence from the market events of May 2010," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 262-274.
    • Handle: RePEc:eee:jbfina:v:49:y:2014:i:c:p:262-274
    DOI: 10.1016/j.jbankfin.2014.08.005
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    More about this item

    Keywords

    Market events of May 6th 2010; Options markets; Resilience;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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