Option moneyness and price disagreements

Heejin Yang, Ali Kutan and Doojin Ryu

Applied Economics Letters, 2018, vol. 25, issue 3, 192-196

Abstract: This article investigates price disagreements between actual and options-implied futures prices by considering option moneyness. Out-of-the-money (OTM) options trading induces price disagreements more frequently than at-the-money (ATM) options trading. Examining price adjustments to eliminate disagreements, we find that the futures (options) market tends to move less (more) for OTM option disagreements than ATM option disagreements, suggesting that the price dynamics of OTM options are less informative and noisier than that of ATM options.

Date: 2018
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DOI: 10.1080/13504851.2017.1307931

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