HCBE Faculty Articles

Title

Differential Information in Option Volume and Stock Volume

Document Type

Article

Date

9-29-2011

Publication Title

Journal of Derivatives & Hedge Funds

ISSN or ISBN

1753-965X

Volume

17

Issue

4

First Page

298

Last Page

312

Description

We find that option volumes and stock volumes contain differential information in the setting of the final forecasted stock price. For situations in which the forecasted stock price is expected to increase, the upper bound may be established by call buy volumes and the lower bound by put sell volumes. With implicit stock price decreases, we find bounds based on call sell volumes and put buy volumes. Other limits are imposed by the information contained in short sale volumes and the exercise price. Within these limits, market makers use the information contained in stock buy and sell volumes to determine future stock bid and ask quotes.

DOI

10.1057/jdhf.2011.23

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