R.J. McGee, F. McGroarty, “The Risk Premium That Never Was: A Fair Value Explanation of the Volatility Spread”

We present a new framework to investigate the profitability of trading the volatility spread, the upward bias on implied volatility as an estimator of future realized volatility. The scheme incorporates the first four option-implied moments in a growth-optimal payoff that is statically replicated using a portfolio of options. Removing the upward bias on implied volatility worsens the likelihood score of … Read More »


J. Hull, A. White, “Optimal Delta Hedging for Options”

As has been pointed out by a number of researchers, the normally calculated delta does not minimize the variance of changes in the value of a trader’s position. This is because there is a non-zero correlation between movements in the price of the underlying asset and movements in the asset’s volatility. The minimum variance delta takes account of both price … Read More »


A. Tosi, A. Ziegler, “The Timing of Option Returns”

We document empirically that the returns from shorting out-of-the-money S&P 500 put options are concentrated in the few days preceding their expiration. Back-month options generate almost no returns, and front-month options do so only towards the end of the option cycle. The concentration of the option premium at the end of the cycle reflects changes in options’ risk characteristics. Specifically, … Read More »


N. Branger, H. Hulsbusch, T. F. Middelhoff, “Idiosyncratic Volatility, its Expected Variation, and the Cross-Section of Stock Returns”

This paper explains the negative relation between the realized idiosyncratic volatility (IVOL) and expected returns. Using implicit information from the cross-section of options we extract expectations about the volatility of idiosyncratic volatility (IVOLVOL) in an almost model-free fashion. We show that IVOL is mean-reverting and that IVOLVOL serves as proxy for the meanreversion speed. Running double sorts on both measures … Read More »


S. C. Anagnostopoulou, A. Tsekrekos – “Accounting Quality, Information Risk and Implied Volatility around Earnings Announcements”

Abstract: We examine the impact of accounting quality, used as a proxy for information risk, on the behavior of equity implied volatility around quarterly earnings announcements. Using US data during 1996-2010, we observe that lower (higher) accounting quality significantly relates to higher (lower) levels of implied volatility (IV) around announcements. Worse accounting quality is further associated with a significant increase … Read More »


S. C. Anagnostopoulou, A. Ferentinou, P. Tsaousis, A. Tsekrekos – “The Option Market Reaction to Bank Loan Announcements”

Abstract: In this study, we examine the options market reaction to bank loan announcements for the population of US firms with traded options and loan announcements during 1996–2010. We get evidence on a significant options market reaction to bank loan announcements in terms of levels and changes in short-term implied volatility and its term structure, and observe significant decreases in … Read More »


OptionMetrics Research Conference (ORC2016)

OptionMetrics Research Conference 2016, November 14, 2016 | New York, NY
OptionMetrics is excited to announce our 5th Annual Research Conference (ORC2016). As in years past, ORC2016 will bring together OptionMetrics users and researchers from both academia and industry to present and discuss their research. The focus of this conference is to share ideas, explore trends and developments in the field, and increase in-depth knowledge of the options markets…Read More »


C. Moll, S. Huffman – “The Incremental Information Content of Innovations in Implied Idiosyncratic Volatility”

Motivated by mixed evidence related to the pricing of measures of risk, we investigate the information content of innovations in implied idiosyncratic volatility. Using both cross-sectional and time-series methodologies, we find that innovations in implied idiosyncratic volatility explain future returns for a sample of 2,864 optionable firms examined during the 1999-2010 sample period. We find that long-short… Read More »


J. Faias, P. Santa-Clara, “Optimal Option Portfolio Strategies: Deepening the Puzzle of Index Option Mispricing”

Traditional methods of asset allocation (such as mean-variance optimization) are not adequate for option portfolios because the distribution of returns is non-normal and the short sample of option returns available makes it difficult to estimate their distribution. We propose a method to optimize a portfolio of European options, held to maturity, with a myopic objective function that overcomes these limitations… Read More »


OptionMetrics to Present at Global EQD 2016

OptionMetrics’ President and Founder, David Hait, will be kicking off the conference with a presentation titled “What Implied Volatility Tells Us About Future Asset Returns,” where he’ll share insights on how main findings from recent trends in academic papers can be applied from an operational perspective… Read More »