We analyze the effect of option trading on the return predictability of short interest. There is no difference in the return predictability of short-interest ratios between stocks with and without traded options. The predictability of the put-call open interest ratio (PCOIR) is weaker than that...

If the implied volatility is higher than the realized volatility, OTM call returns can be negative and decrease in strike prices/skewness, a return pattern also consistent with skewness preference. Empirically, we find the above return pattern is not driven by investors purchasing OTM calls, but...