What options to trade and when: Evidence from seasoned equity offerings

Environmental, social, and governance practices and perceived tail risk

“…To obtain a forward-looking measure of tail risk, we compute the implied volatility smirk on individual equity options, as larger smirks have been linked with negative future returns (Cremers and Weinbaum, 2010;Xing et al, 2010) and informed trading prior to corporate events that have a negative impact on stock prices (Jin et al, 2012;Zhang, 2017Zhang, , 2018Kim et al, 2019b). Given that options are forward-looking and that the implied volatility smirk has been associated with negative future events and returns, we follow Kim et al ( , 2018, and Kim and Zhang (2014) and use the smirk to measure ex-ante or perceived tail risk.…”

“…2 Because options are forward-looking and research has shown that the implied volatility smirk is more pronounced before negative future returns and before corporate events that have a negative influence on stock price, a stream of research that utilises the implied volatility smirk as a measure of ex-ante expected tail risk or perceived tail risk has developed. For instance, use the implied volatility smirk to show that financial statement comparability yields lower expected tail risk, and Kim et al (2018) find that exogenous reductions in analyst coverage cause an increase in the implied volatility smirk and conclude that markets perceive increased tail risk. In addition, Kim and Zhang (2014) measure perceived tail risk through the implied volatility smirk and find that financial reporting transparency significantly reduces ex-ante expected tail risk.…”

Option trading after the opening bell and intraday stock return predictability

“…Prior studies have also examined implied volatility and skew changes prior to corporate announcements (Gharghori, Maberly, & Nguyen, ; Hao, ; Kim, Kim, & Seo, ; Lei, Wang, & Yan, ; Lin & Lu, ; Zhang, ). Augustin, Brenner, Grass, and Subrahmanyam () identify optimal strategies for informed traders in terms of option type, maturity, and strike price for different corporate news events and demonstrate empirically that their informed trading measures improve the predictability of these events.…”

When do informed traders acquire and trade on informational advantage? Evidence from Federal Reserve stress tests

“…Finally, we contribute to the options literature by providing empirical evidence from a novel new setting that supports the findings of Kim, Kim, and Seo (2018) that informed option traders exploit their informational advantage as soon as possible. Our findings regarding the timing of option traders' information acquisition and trading are consistent with existing studies, such as Jin et al (2012), Gharghori et al (2017), and Weinbaum et al (2020), that find that return predictability from option trading is driven by acquisition of private information as well as a superior ability to process public information.…”