Why Do Financial Intermediaries Buy Put Options from Companies?

Stanley Gyoshev, Todd Kaplan, Samuel Szewczyk and George Tsetsekos

MPRA Paper from University Library of Munich, Germany

Abstract: In the 1990s, companies collected billions in premiums from peculiarly structured put options written on their own stock while almost all of these puts expired worthless. Buyers of these options, primarily �nancial intermediaries, lost money as a result. Although these losses might seem puzzling, by offering to buy put options from better informed parties, intermediaries receive private information about the issuing company. We fi�nd that the magnitude of changes and structural breaks in the stocks' �price trends and volumes around the put sales indicate that the intermediaries were indeed acting on this information and potentially made hundreds of billions of dollars.

Keywords: Separating Equilibrium; Put Options; Information Acquisition; Strategic Trading (search for similar items in EconPapers)
JEL-codes: G12 G13 G14 G18 G24 G28 (search for similar items in EconPapers)
Date: 2012-12-04
New Economics Papers: this item is included in nep-cta
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Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/69922/1/MPRA_paper_69922.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/43596/1/MPRA_paper_43596.pdf revised version (application/pdf)

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