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Informed Options Trading Prior to M & A Announcements

Informed Options Trading Prior to M & A Announcements
Author: Patrick Augustin
Publisher:
Total Pages: 80
Release: 2014
Genre: Consolidation and merger of corporations
ISBN:

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"There is often a tip. Before many big mergers and acquisitions, word leaks out to select investors who seek to covertly trade on the information. Stocks and options move in unusual ways that aren't immediately clear. Then news of the deals crosses the ticker, surprising everyone except for those already in the know. Sometimes the investor is found out and is prosecuted, sometimes not. That's what everyone suspects, though until now the evidence has been largely anecdotal. Now, a groundbreaking new study finally puts what we've instinctively thought into hard numbers -- and the truth is worse than we imagined. A quarter of all public company deals may involve some kind of insider trading, according to the study by two professors at the Stern School of Business at New York University and one professor from McGill University. The study, perhaps the most detailed and exhaustive of its kind, examined hundreds of transactions from 1996 through the end of 2012. The professors examined stock option movements -- when an investor buys an option to acquire a stock in the future at a set price -- as a way of determining whether unusual activity took place in the 30 days before a deal's announcement. The results are persuasive and disturbing, suggesting that law enforcement is woefully behind -- or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines. The professors are so confident in their findings of pervasive insider trading that they determined statistically that the odds of the trading 'arising out of chance' were 'about three in a trillion.' (It's easier, in other words, to hit the lottery.) But, the professors conclude, the Securities and Exchange Commission litigated only 'about 4.7 percent of the 1,859 M. & A. deals included in our sample.'"--Andrew Ross Sorkin, NY Times, June 16, 2014.


Informed Options Trading Before Corporate Events

Informed Options Trading Before Corporate Events
Author: Patrick Augustin
Publisher:
Total Pages: 34
Release: 2020
Genre:
ISBN:

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There is sufficient evidence in the popular, legal, and financial literature that informed options trading ahead of scheduled and unexpected corporate events is pervasive. In this review, we piece together the extant evidence on this topic into a cohesive picture, which includes abnormal activity ahead of announcements of earnings, mergers and acquisitions, as well as numerous other corporate events. We also discuss the more limited evidence on informed trading in other derivatives markets, such as credit default swaps (CDSs). In addition, we characterize the impact and features of illegal insider trading, and insider trading networks. We also provide a brief overview of the legal framework in the U.S. concerning legal and illegal insider trading, in order to emphasize the challenges associated with identifying informed options trading. We end with our suggestions regarding future research opportunities in this broad topic.


Informed Trading in Options Markets and Its Information Value

Informed Trading in Options Markets and Its Information Value
Author: Justin Vitanza
Publisher:
Total Pages: 83
Release: 2015
Genre: Information theory in finance
ISBN:

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"In this paper, I present evidence that informed traders represent a large enough portion of option market activity to impact market prices. By entering the market on the long side before positive or negative events, they drive up both open interest and ask prices, while bid prices remain relatively stable. Seeing this pattern is indicative of either positive (when found in calls) or negative (for puts) future news announcements. When conditioning on these announcements, we also see that this pattern predicts return reactions. In particular, information embedded in option prices is useful in predicting earnings surprises and reactions to mergers. My primary measure of option information content is the change in the difference between implied volatility and realized daily volatility measured over the previous month. With hindsight, this difference rises prior to positive announcements for call options, while it rises prior to negative announcements for put options. This differential behavior provides strong evidence that these assets are not redundant in practice, as is often implied by option pricing models. Further, this information constitutes a primary risk factor in equity markets, as positive announcement risk is positively related to future returns due to the procyclicality of these announcements. Efficiently utilizing this information suggests a long-short trading strategy that yields over 1.2 percent per month. This strategy also completely explains the call-put volatility spread anomaly and is robust to controls for aggregate volatility sensitivity and known metrics that purport to monitor informed trading"--Page v.


Option Strategies for Earnings Announcements

Option Strategies for Earnings Announcements
Author: Ping Zhou
Publisher: Financial Times/Prentice Hall
Total Pages: 0
Release: 2013
Genre: Corporate profits
ISBN: 9780132947398

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By trading on corporate earnings, investors can reliably profit in both up and down markets, while avoiding market risk for nearly the entire quarter. In this book, two leading traders and portfolio managers present specific, actionable techniques anyone can use to capture these sizable profits. Ping Zhou and John Shon have performed an unprecedented empirical analysis of thousands of stocks, reviewing tens of millions of data points associated with option prices, earnings announcement returns, and fundamentals. Their massive analysis has identified consistent opportunities associated with focusing on the magnitude of the market's reaction to earnings, not its direction. Option Trading Set-Ups for Corporate Earnings News offers concrete guidance for improving the likelihood of making correct forecasts, and managing the risks of incorrect forecasts. It introduces several ways to exploit option trading opportunities around earnings news, discuss crucial issues that most retail investors haven't considered, and explore aspects of earnings-related option trading that have never been empirically examined and documented before. For example, they identify hidden patterns and potential opportunities based on valuation, industry, volatility, analyst forecasts, seasonality, and trades that immediately follow earnings announcements. Simply put, trading on earnings reports offers immense profit opportunities, if you know how. This book provides incontrovertible facts and detailed strategies, not just theories and anecdotes!


Informed Trading in Option Markets Around Accelerated Share Repurchase Announcements

Informed Trading in Option Markets Around Accelerated Share Repurchase Announcements
Author: Ladshiya Atisoothanan
Publisher:
Total Pages: 46
Release: 2017
Genre:
ISBN:

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We find that the informed trading measures “abnormal O/S ratio”, “abnormal option volume” and “abnormal implied volatility skew” are negatively related to event period abnormal returns for accelerated share repurchases (ASRs) announcements. This effect is stronger for call options and with more liquid options. The abnormal implied volatility spread has information content only for firms with the more liquid options. Further, we show that abnormal returns are positively (negatively) related to the abnormal call (put) volatility surface for options with longer terms to maturity. Overall, our study provides strong evidence of informed trading around ASR announcements.


Mergers, Acquisitions, and Corporate Restructurings

Mergers, Acquisitions, and Corporate Restructurings
Author: Patrick A. Gaughan
Publisher: John Wiley & Sons
Total Pages: 819
Release: 2017-11-27
Genre: Business & Economics
ISBN: 1119380731

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The essential M&A primer, updated with the latest research and statistics Mergers, Acquisitions, and Corporate Restructurings provides a comprehensive look at the field's growth and development, and places M&As in realistic context amidst changing trends, legislation, and global perspectives. All-inclusive coverage merges expert discussion with extensive graphs, research, and case studies to show how M&As can be used successfully, how each form works, and how they are governed by the laws of major countries. Strategies and motives are carefully analyzed alongside legalities each step of the way, and specific techniques are dissected to provide deep insight into real-world operations. This new seventh edition has been revised to improve clarity and approachability, and features the latest research and data to provide the most accurate assessment of the current M&A landscape. Ancillary materials include PowerPoint slides, a sample syllabus, and a test bank to facilitate training and streamline comprehension. As the global economy slows, merger and acquisition activity is expected to increase. This book provides an M&A primer for business executives and financial managers seeking a deeper understanding of how corporate restructuring can work for their companies. Understand the many forms of M&As, and the laws that govern them Learn the offensive and defensive techniques used during hostile acquisitions Delve into the strategies and motives that inspire M&As Access the latest data, research, and case studies on private equity, ethics, corporate governance, and more From large megadeals to various forms of downsizing, a full range of restructuring practices are currently being used to revitalize and supercharge companies around the world. Mergers, Acquisitions, and Corporate Restructurings is an essential resource for executives needing to quickly get up to date to plan their own company's next moves.


Understanding Options

Understanding Options
Author: Rob Quail
Publisher: John Wiley & Sons
Total Pages: 420
Release: 1995-02-28
Genre: Business & Economics
ISBN: 9780471085546

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It's not hard to understand why options trading continues to growin popularity, especially among sophisticated investors with largestock portfolios. Options are a cheaper and therefore, inherentlyless risky way of speculating on the price movements of stocks orother under-lying goods, yet, due to their volatility, they providemore price action per dollar than do stocks. And, when traded inconjunction with stock portfolios, options can significantlyenhance an investor's ability to manipulate the risk and returncharacteristics of their entire investment. Yet, despite these andother advantages of options, many investors shy away from thishighly lucrative type of speculation because of the seemingimpenetrability of many of its underlying concepts and technicalprinciples. Now in a book that demystifies options for financial professionals,Professor Robert W. Kolb, one of the nation's leading authoritieson the subject, provides readers with a solid grounding in theprinciples and practices of options trading. An excellent resourcefor investors who need to quickly get up to speed in options,Understanding Options offers a balanced presentation that buildsswiftly from the most basic concepts and terms to advanced tradingstrategies and techniques. Written in plain English and filled withreal-life examples and case studies, it schools readers in: * All essential terms, concepts, principles, and practices * Popular trading techniques and their payoffs * Option strategies * Option hedging * Formal trading models, including the Binomial and Merton models * Options on stock indexes, foreign currency, and futures * Option pricing in both the American and European markets * The options approach to corporate securities * And much more Concise yet comprehensive, authoritative yet highly accessible,Understanding Options gives you everything you need to feel rightat home in the lucrative world of options. Comprehensive, practical, authoritative--the fastest, mostaccessible route to the lucrative world of options From the basics of what an option is to advanced techniques forprofiting from options in a variety of markets, UnderstandingOptions covers all the bases. Written by a leading internationalauthority on options trading, this practical, hands-on guide offersdetailed, step-by-step coverage of option trading techniques andtheir payoffs, option strategies, European and American optionpricing, option hedging, and much more. It also explores options onstock indexes, foreign currency, and futures, and takes a closelook at the options approach to corporate securities. A concise, yet comprehensive, introduction to options for financialprofessionals * Gets you quickly up and running with all the essential knowledgeyou need to break into the options markets * Featuring a balanced presentation that moves swiftly from basicterms and concepts to advanced trading models * Packed with easy-to-follow examples and case studies that lucidlyillustrate all points covered


Options

Options
Author: Robert W. Kolb
Publisher: Prentice Hall
Total Pages: 232
Release: 1991
Genre: Business & Economics
ISBN: 9780136389330

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Options: The Investor's Complete Toolkit covers the qualitative aspects of options most visible to the public -- profit motivated trading. And, it goes much further -- highlighting the quantitative side of options for portfolio managers, risk managers, hedging strategists, financial engineers, and arbitrageurs.


SEC Docket

SEC Docket
Author: United States. Securities and Exchange Commission
Publisher:
Total Pages: 1196
Release: 2015
Genre: Securities
ISBN:

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Options Markets

Options Markets
Author: John C. Cox
Publisher: Prentice Hall
Total Pages: 518
Release: 1985
Genre: Business & Economics
ISBN:

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Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.