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

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...

Full description

Saved in:
Bibliographic Details
Published inThe Financial review (Buffalo, N.Y.) Vol. 57; no. 3; pp. 691 - 726
Main Authors Choy, Siu Kai, Wei, Jason
Format Journal Article
LanguageEnglish
Published Knoxville Blackwell Publishing Ltd 01.08.2022
Subjects
52‐week high or low
anchoring effect
option returns
Options trading
Put & call options
Securities markets
underpricing
Online AccessGet full text

Cover

More Information
Summary: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.
ISSN:0732-8516
1540-6288
DOI:10.1111/fire.12310