When trading options is not the only option: The effects of single‐stock futures trading on options market quality

George J. Jiang, Yoshiki Shimizu and Cuyler Strong

Journal of Futures Markets, 2020, vol. 40, issue 9, 1398-1419

Abstract: We use the 2008 short‐selling ban to examine the impact of single‐stock futures (SSFs) trading on options market quality. We show that there is a substitution effect between options trading and SSFs trading during the ban period. In addition, our results show that SSFs trading had a significant effect in narrowing the bid‐ask spreads of options contracts. Moreover, compared to stocks without SSFs, stocks with SSFs were less likely to violate put‐call parity during the ban period. Our results suggest that SSFs trading helps mitigate the negative effect of the short‐selling ban on options market quality documented in the literature.

Date: 2020
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