Index Option Prices and Stock Market Momentum

We test the prediction of standard option pricing models that there should be no relation between option prices and past stock market movements. Using the Standard and Poor's 100 index options (OEX options) prices from 1983–1995, we document that OEX calls are significantly overvalued relative...

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Veröffentlicht in:	The Journal of business (Chicago, Ill.) Ill.), 2004-10, Vol.77 (4), p.835-874
Hauptverfasser:	Amin, Kaushik, Coval, Joshua D., Seyhun, H. Nejat
Format:	Artikel
Sprache:	eng
Schlagworte:	Arbitrage Boundary conditions Business studies Call options Correlation analysis Fair value Futures Indexes Investments Investors Market prices Option pricing Options markets Options trading Price volatility Put & call options Put options Rates of return Securities markets Securities prices Skewness Stochastic models Stock exchange Stock exchanges Stock options Stock prices Strike prices Studies Supply & demand Valuation Violations Volatility
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Beschreibung
Zusammenfassung:	We test the prediction of standard option pricing models that there should be no relation between option prices and past stock market movements. Using the Standard and Poor's 100 index options (OEX options) prices from 1983–1995, we document that OEX calls are significantly overvalued relative to OEX puts after large stock price increases. The reverse is true after large stock price decreases. These valuation effects are both economically and statistically significant. Our results suggest that past stock returns exert an important influence on index option prices.
ISSN:	0021-9398 1537-5374
DOI:	10.1086/422440