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research article

Does information drive trading in option strategies?

Fahlenbrach, R.  
•
Sandås, P.
2010
Journal of Banking and Finance

We study trading in option strategies in the FTSE-100 index market. Trades in option strategies represent around 37% of the total number of trades and over 75% of the total trading volume in our sample. We find some evidence that order flow in volatility-sensitive option strategies contains information about future realized volatility. We do not find evidence that order flow in directionally-sensitive option strategies contains information about future returns. Overall, our evidence suggests that option strategies are used both by traders who possess non-public information about future volatility and by uninformed speculators who appear to follow unprofitable trend chasing strategies. © 2010 Elsevier B.V.

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