Do Option Volumes Predict Spot Prices?: Evidence from the KOSPI 200 Index Option Market

Choi, Byung Wook

Korean Journal of Financial Studies 2011;40(4):551-578.
Published online September 30, 2011.

Byung Wook Choi

옵션거래량 정보는 현물가격을 예측하는가?

최병욱

Abstract

This study examines forecasting power of option volumes implicit in KOSPI 200 options by analyzing minute by minute historical index option intraday trading data from January of 2007 to January of 2011. We begin by calculating volume ratio of call and put for ATM, OTM and ITM options, and then compare the daily rate of return of the signal following trading strategy that we buy (sell) a stock index when the volume ratio increases (decreases) with that of an intraday buy-and-hold strategy that we buy a stock index on 9:05AM and sell it on 2:50PM. We found that the rate of return of the signal following trading strategy was significantly higher than that of the intraday buy-and-hold strategy, which implies that the option volumes have a strong forecasting power on the direction of stock market. Secondly, the stock index has a positive relationship with the ATM and ITM call volume but a negative relationship with OTM call volume which contradicts to the view that informed traders tend to prefer OTM options with higher leverage to the ATM. Another finding is that the information contents of option volumes disappear after two minutes.

Key Words: 매입보유전략,옵션거래량,지표추종전략,효율적시장가설,Buy-and-Hold Strategy,Efficient Market Hypothesis,KOSPI 200 주가지수옵션,KOSPI 200 Option,Option Volume,Signal Following Trading Strategy