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E. Maberly, R. Pierce, and P. Catania, “Threshold Levels, Strike Price Grid and Other Market Microstructure Issues Associated with Exchange Traded Equity Options,” Journal of Futures Markets, Forthcoming.

E. Maberly, R. Pierce, and P. Catania, “Threshold Levels, Strike Price Grid and Other Market Microstructure Issues Associated with Exchange Traded Equity Options,” Journal of Futures Markets, Forthcoming.

Abstract: This paper addresses a number of important market microstructure issues associated with exchange traded equity options having significant research implications for studies investigating clustering on option strike prices. Price threshold levels are examined associated with exchange listing and the automatic exercise of equity options as established by the SEC and OCC to carry out their regulatory and oversight responsibilities. Significant changes are documented including motivation for such changes. Market microstructure issues potentially impact equity options research outcomes and one important issue is documenting changes over time to the strike price grid. A chronological outline of the introduction of option strike codes from April 26, 1973 through December 2008 is presented. Pricing discrepancies are documented between S&P’s end-of-day updates (closing prices) and similar prices reported by CRSP, Thompson and Bloomberg, which is the source of ambiguities associated with the OCC’s official settlement price. A number of quirks associated with option databases are identified of potential interest to researchers.