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The role of option‐based information on StockTwits, options trading volume, and stock returns

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  • Zin Yau Heng
  • Henry Leung

Abstract

We examine the relations between activities of multiple information channels for stocks simultaneously covered on the StockTwits social media platform, the options market, and the stock market. First, we show that, for our focal firms, net trade options volume ratio from the options market is positively and significantly related to the bullish sentiment of posts on StockTwits. Second, we find that net trade options volume ratio and bullish posts are positively and significantly related to stock returns. Third, we show that higher agreement amongst the sentiment of posts on StockTwits and net trade options volume ratio for options that are deeply out‐of‐the‐money (high leverage) both predict future stock returns for up to 20 days. This finding is consistent with the explanation that informed investors have an affinity to trade deeply levered options to maximize their returns at the lowest cost.

Suggested Citation

  • Zin Yau Heng & Henry Leung, 2023. "The role of option‐based information on StockTwits, options trading volume, and stock returns," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(8), pages 1091-1125, August.
    • Handle: RePEc:wly:jfutmk:v:43:y:2023:i:8:p:1091-1125
    DOI: 10.1002/fut.22399
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