When is informed trading more prevalent?—An examination of options trading around Indian M&A announcements

This study examines the prevalence of informed trading around proximate‐date versus far‐date mergers and acquisitions (M&As). Further, different options strategies pursued by informed traders in proximate‐date M&As are identified. The results highlight that proximate‐date M&As are associated with a significantly higher level of informed trading vis‐à‐vis far‐date M&As. Results on the choice of options strategies highlight that risk‐averse, informed traders may pursue a straddle strategy to profit from their private information, while risk‐seeking, informed traders may use a vertical call spread strategy. Informed traders desirous of hedging their existing positions may employ a protective put strategy.