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What options to trade and when: Evidence from seasoned equity offerings

Donghan Kim, Jun Sik Kim and Sung Won Seo

Journal of Financial Markets, 2018, vol. 37, issue C, 70-96

Abstract: We investigate options predictability and trading patterns around seasoned equity offerings (SEOs). A negative relation is found between option-implied skewness and post-SEO performance, which is more significant for highly overvalued SEOs. In terms of investment timing, the option-implied skewness reflects long-run information before the equity issuances, while short-run information is updated as the issuance nears. For investment horizon measured by time to expiration (TTE), options with long TTEs have only long-run predictability, while options with short TTEs have only short-run predictability. This study supports informed options trading and helps to clarify options informativeness for various estimation periods and TTEs.

Keywords: Seasoned equity offerings; Option-implied skewness; Informed trading; Investment timing; Investment horizon; LEAPS (search for similar items in EconPapers)
JEL-codes: C53 G14 G23 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:finmar:v:37:y:2018:i:c:p:70-96