Informed options strategies before corporate events

Patrick Augustin, Menachem Brenner, Gunnar Grass, Piotr Orłowski and Marti G. Subrahmanyam

Journal of Financial Markets, 2023, vol. 63, issue C

Abstract: We analyze how informed investors trade in the options market ahead of corporate news when they receive private, but noisy, information about the timing and impact of these announcements on stock prices. We propose a framework that ranks options trading strategies (option type, maturity, and strike price) based on their maximum attainable leverage when price-taking investors face market frictions. We exploit the heterogeneity in announcement characteristics across twelve categories of corporate events to support that event-specific information signals are informative for announcement returns and that they impact the optimal choice of option moneyness and tenor.

Keywords: Corporate announcements; Derivatives; Event studies; Insider trading; Market microstructure (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 K42 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:63:y:2023:i:c:s1386418122000568

DOI: 10.1016/j.finmar.2022.100766

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