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Net Buying Pressure and Option Informed Trading
Author(s) -
Chen ChaoChun,
Wang ShihHua
Publication year - 2017
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21797
Subject(s) - volatility (finance) , implied volatility , volatility smile , algorithmic trading , volatility swap , economics , trading strategy , financial economics , econometrics
To differentiate between the effects of volatility trading and direction trading on an option market, this study decomposes net buying pressure of options into volatility‐motivated demand and direction‐motivated demand and examines their information content accordingly. With the two proposed measures, we find that changes in implied volatility of TAIEX OTM put options are driven by both volatility trading and directional trading over the sample period before the onset of the 2011 U.S. debt‐ceiling crisis, though the volatility trading effect is less than the directional trading effect. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:238–259, 2017