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G. Capelle-Blancard and M. Chaudhury, “Spider Options and the S&P 500 Index Options Market,” (Working paper, Universite Paris and McGill University, 5 February 2007).

G. Capelle-Blancard and M. Chaudhury, “Spider Options and the S&P 500 Index Options Market,” (Working paper, Universite Paris and McGill University, 5 February 2007).

Abstract:
Using daily closing options data for the January 01, 2004 to June 30, 2005 period, we examine if the listing of Spider options on January 10, 2005 had any major impact on the quoted bid-ask spread, volume and implied volatility pattern of the S&P 500 Index options. Based on regression-based measures proposed in this paper, we find the call spread and volume to shrink, and the put spread and volume to rise, leading to a minor net volume decline in total. Consequently, index put transaction cost rises for the investors and the market makers enjoy a boost in revenue while the CBOE’s fee revenue perhaps suffers a little. Considering spread and volume effects, the liquidity implication is uncertain. Pricing of the S&P 500 Index options is not affected as the implied volatility pattern remains largely in tact.