Options Trading Costs Are Lower than You Think

• 成果类型: Article
• 署名作者: Muravyev, Dmitriy; Pearson, Neil D.
• 署名单位: Michigan State University; University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa010
• 发表日期: 2020
• 页码: 4973
• 关键词: cross-section; MARKET; RISK; equilibrium; liquidity; returns; spreads; stocks

摘要

Conventional estimates of the costs of taking liquidity in options markets are large. Nonetheless, options trading volume is high. We resolve this puzzle by showing that options price changes are predictable at high frequency, and many traders time executions by buying (selling) when the option fair value is close to the ask (bid). Effective spreads of traders who time executions are less than 40% of the size of conventional measures, and the overall average effective spread is one-quarter smaller than conventional estimates. Price impact measures are also affected. These findings alter conclusions about the after-cost profitability of options trading strategies.