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J. Zhang & Q.Wang: Informed Options Trading and Stock Price Crash Risk

August 15, 2025

This study investigates the impact of informed options trading on stock price crash risk. Informed options trading, measured by options to stock trading volume ratio (O/S), has significantly negative impact on future stock price crash risk. The negative effect is more pronounced for riskier firms, for firms with greater information asymmetry, and when the options market is more liquid, and it is robust to tests exploring quasi-natural experiments and instrumental variable analysis. Further tests support the mechanism that informed options trading reduces stock price crash risk by improving stock price informativeness and decreasing managerial bad news hoarding.

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