Option market overreaction to stock price changes
Journal
Journal of Finance and Risk Perspectives
Subject
Finance
Publishing details
Publication Year
2012
Abstract
In this paper we examine the relationship between implied volatility of individual stocks in the S&P 100 and the ex-post realized volatility of these stocks following weekly movements of at least 10 percent in the underlying stock prices. When conditioning on these extreme stock price events, we find that the implied volatility is significantly higher than the realized volatility. Furthermore, we are able to construct profitable trading strategies based on this finding. These strategies are successful both in event and calendar time.
Available on ECCH
No
