Options resilience during extreme volatility: Evidence from the market events of May 2010

Nusret Cakici, Gautam Goswami and Sinan Tan

Journal of Banking & Finance, 2014, vol. 49, issue C, 262-274

Abstract: Using intraday trades and quotes data, we study the stock options market before, during, and after the market events of May 6, 2010. Focusing on the S&P 500 and S&P 100 stock options, we explore if the options market provided any discernible signals that forewarned the extreme volatility on that day and whether the recovery was fast and without a permanent impact. We find that the options market reacted to the volatility- rather than predicting it, and almost all of the variables are indistinguishable from their previous levels in the next few trading days. Intraday empirical analysis suggests that most of the impact was over within a few hours from the peak of market volatility.

Keywords: Market events of May 6th 2010; Options markets; Resilience (search for similar items in EconPapers)
JEL-codes: G13 G14 G28 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:49:y:2014:i:c:p:262-274

DOI: 10.1016/j.jbankfin.2014.08.005

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