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F. Hollstein, C. Wese Simen: How do Investors Trade Option Anomalies?

March 21, 2025

We examine the positioning of different types of traders with respect to option return anomalies. Anomaly demand varies widely across variables and between call and put options. With their anomaly exposures, customers are overwhelmingly on the wrong side of anomalies. Market makers are the main beneficiaries. Preferred habitats explain the exposures to multiple anomalies, while end-user demand also emerges as a likely driver of several anomalies. Aggregate end-user trading patterns suggest that they mainly seek outright rather than delta-hedged option exposure. Finally, market makers appear to dynamically adjust prices based on firm trader demand, but not customer demand.

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