Information embedded in the trading volume of currency options

Abstract

This paper expands on the existing literature about the predictive power of the trading volume of options for the future spot price of assets. It presents an empirical examination of the relationship between the trading volume of options for the Canadian dollar, the Swiss franc and the British pound and their exchange rates against the US dollar, 17 h after regular trading hours in Chicago. Except for the Canadian dollar, an additional day of trade distorts these relationships. At the same time, the exchange rate of the Japanese yen was less related to the options' volume of trade. It is seen that different currencies, which are traded in their homeland during different regular trading hours, are accordingly related to the options trading volume in Chicago.