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Option moneyness and price disagreements

Author

Listed:
  • Heejin Yang
  • Ali M. Kutan
  • Doojin Ryu

Abstract

This article investigates price disagreements between actual and options-implied futures prices by considering option moneyness. Out-of-the-money (OTM) options trading induces price disagreements more frequently than at-the-money (ATM) options trading. Examining price adjustments to eliminate disagreements, we find that the futures (options) market tends to move less (more) for OTM option disagreements than ATM option disagreements, suggesting that the price dynamics of OTM options are less informative and noisier than that of ATM options.

Suggested Citation

  • Heejin Yang & Ali M. Kutan & Doojin Ryu, 2018. "Option moneyness and price disagreements," Applied Economics Letters, Taylor & Francis Journals, vol. 25(3), pages 192-196, February.
    • Handle: RePEc:taf:apeclt:v:25:y:2018:i:3:p:192-196
    DOI: 10.1080/13504851.2017.1307931
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    Citations

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    Cited by:

    1. Jieun Lee & Doojin Ryu, 2019. "The impacts of public news announcements on intraday implied volatility dynamics," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(6), pages 656-685, June.
    2. Doojin Ryu & Heejin Yang, 2018. "The directional information content of options volumes," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(12), pages 1533-1548, December.
    3. Yang, Heejin & Kutan, Ali M. & Ryu, Doojin, 2019. "Volatility information trading in the index options market: An intraday analysis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 412-426.
    4. Lee, Jaeram & Lee, Geul & Ryu, Doojin, 2018. "Difference in the intraday return-volume relationships of spots and futures: A quantile regression approach," Economics Discussion Papers 2018-68, Kiel Institute for the World Economy (IfW Kiel).
    5. Joonhyuk Song & Doojin Ryu & Jinyoung Yu, 2023. "Changes in the options contract size and arbitrage opportunities," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(1), pages 122-137, January.
    6. Chun, Dohyun & Cho, Hoon & Ryu, Doojin, 2019. "Forecasting the KOSPI200 spot volatility using various volatility measures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 514(C), pages 156-166.
    7. Lee, Jaeram & Ryu, Doojin & Yang, Heejin, 2021. "Does vega-neutral options trading contain information?," Journal of Empirical Finance, Elsevier, vol. 62(C), pages 294-314.
    8. Doojin Ryu & Jinyoung Yu, 2021. "Informed options trading around holidays," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(5), pages 658-685, May.
    9. Jung Park, Yuen & Kutan, Ali M. & Ryu, Doojin, 2019. "The impacts of overseas market shocks on the CDS-option basis," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 622-636.
    10. Daehyeon PARK & Doojin RYU, 2021. "Forecasting Stock Market Dynamics using Bidirectional Long Short-Term Memory," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 22-34, June.

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