A crowded trade emerges when speculators' positions are large relative to the asset's liquidity, making exit difficult. We study this problem of recent regulatory concern by focusing on short-selling. We show that days to cover (DTC), the ratio of short interest to trading volume, measures the...

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...

The question of whether and to what extent option trading impacts underlying stock prices has been of interest since options began exchange-based trading in 1973. Recent research presents evidence of an informational channel through which option trading impacts stock prices by showing that...

We examine the interaction between price discovery in banned stocks and the trading and prices of options and CDS during the 2008 short sale ban. We find that among banned stocks, stocks with high open purchased put-call ratios, low synthetic to stock price ratios, or high CDS percentage change...

We find that the demand for stock options that increases exposure to the underlying is positively related to the individual investor sentiments and past market returns, whereas the demand for index options is invariant to these factors. These differences in trading patterns are also reflected in...

The short ratio - shares shorted to shares outstanding - is an oft-used measure of arbitrageurs' opinion about a stock's over-valuation. We show that days-to-cover (DTC), which divides a stock's short ratio by its average daily share turnover, is a more theoretically well-motivated measure...

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...

We find that the demand for stock option positions that increase exposure to the underlying is positively related to measures of investor sentiment and past market returns, while the demand for index options is invariant to these factors. These differences in trading patterns are reflected in...

This paper investigates informed trading on stock volatility in the option market. We construct non-market maker net demand for volatility from the trading volume of individual equity options and find that this demand is informative about the future realized volatility of underlying stocks. We...

Under very weak assumptions, the expected returns of European call options must be positive and increasing in the strike price. This paper investigates the returns to call options on individual stocks that do not have an ex-dividend day prior to expiration. The main findings are that over the...