Jumps in option prices and their determinants: Real-time evidence from the E-mini S&P 500 options market

George Kapetanios; Eirini Konstantinidi; George Skiadopoulos; Michael Neumann

doi:10.1016/j.finmar.2019.100506

Jumps in option prices and their determinants: Real-time evidence from the E-mini S&P 500 options market

George Kapetanios, Eirini Konstantinidi, George Skiadopoulos, Michael Neumann

A&F Accounting & Finance

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Abstract

We provide first-time evidence of the real-time characteristics and drivers of jumps in option prices. To this end, we employ high-frequency data from the 24-h E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the underlying futures price. We also find that 14%–28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives these jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public news releases. Interestingly, illiquidity does not drive jumps in the S&P 500 index options market, where we also find sizable and idiosyncratic price jumps.

Original language	English
Article number	100506
Journal	Journal of Financial Markets
Volume	46
Issue number	0
Early online date	1 Sept 2019
DOIs	https://doi.org/10.1016/j.finmar.2019.100506
Publication status	Published - 2019

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abstract = "We provide first-time evidence of the real-time characteristics and drivers of jumps in option prices. To this end, we employ high-frequency data from the 24-h E-mini S&P 500 options market. We find that option prices do not jump simultaneously across strikes and maturities and are uncorrelated with jumps in the underlying futures price. We also find that 14%–28% of detected option price jumps occur around scheduled news releases. However, it is illiquidity rather than the news content that drives these jumps. Evidence suggests that option traders increase bid-ask spreads to account for trading against investors who are skilled processors of public news releases. Interestingly, illiquidity does not drive jumps in the S&P 500 index options market, where we also find sizable and idiosyncratic price jumps.",

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AU - Neumann, Michael

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Jumps in option prices and their determinants: Real-time evidence from the E-mini S&P 500 options market

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