Informed options strategies before corporate events

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

No 39, LawFin Working Paper Series from Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin)

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: 2022
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/262360/1/1813796823.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:lawfin:39

Access Statistics for this paper

More papers in LawFin Working Paper Series from Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().