Correlation of Key Option Characteristics To examine the correlation between volume, gamma, and moneyness
and maturity, I collect option characteristics for both indexes and single stock firms for 2007-2008, I select index call and put options on the S&P 500, the Russell 2000, and the Dow Jones for contracts whose gamma and trading volume are reported and were actively traded on each sample day.
As shown in Heston (1993), the extent to which the BS model misprices European options when volatility is stochastic depends on a number of factors including the moneyness
of asset prices (i.
Filter searches by moneyness
, probability of assignment, downside protection, return on investment, minimum option bid price, Stock P/E and more.
Hall and Liebman, 1998; and Murphy, 1999) investigated the moneyness
of stock options in the U.
These phases of premise part in Table 1 include the buy/sell trading volume ratio, bid/ask price ratio, moneyness
, discount factor curve (primary & secondary), foreign exchange rate, country risk, political risk, economic risk, financial risk, implied volatility, BS volatility, time value of options and intrinsic value of options.
A graph of IV versus moneyness
is often referred to as the "volatility smile" or "volatility smirk," depending on the shape of the relation.
They consider naked and covered positions, straddles, strangles, and calendar spreads, with different maturities and levels of moneyness
We are particularly pleased to note that moneyness
is not a source of error for our model.
This relationship between the notional amounts and the market values implies that the options sold to customers have a lower degree of moneyness
than options purchased from customers (for definitions of terms, see box).
They can also choose whether the strike price stays constant during run, or whether it changes to keep moneyness
If we had a more general withdrawal rate, say of the form g(t, w, m), where g is a more complicated function than the one used above, then we would have to keep track of the maximum state variable m in addition to the moneyness
state variable y.
We now examine whether moneyness
is a factor in distinguishing exercises of options based on private information from those exercised for other reasons.