U. of I. study casts shadow on options trading

Quote from nitro:



The study is the work of finance professor Neil Pearson, associate professor Allen Poteshman and Ph.D. student Sophie Xiaoyan Ni. They based their findings on a mathematical analysis of data from the Chicago Board Options Exchange that covered trading from 1996 through 2002.

SO THE PROFESSER IS USING A STUDENT WHO NEVER TRADED IN HER LIFE TO DO A STUDY OF TRADING... HMM. YOU KNOW HE IS DOING HER.


Although both professors specialize in options research, they said they don't trade the contracts.

LOL LOL LOL, THEY SPECIALIZE IN RESEARCH BUT THEY HAVE NEVER TRADED A CONTRACT.


"Independent of this study, I don't think it makes much sense for retail investors to trade options,'' Pearson said, acknowledging that his view would earn him enemies on La Salle Street.

THEY NEVER TRADED OPTIONS SO THEY ARE QUALIFIED TO TELL PEOPLE NOT TO TRADE OPTIONS??? ARE PROFESSORS DUMBER THAN WHEN I WENT TO SCHOOL??? NOW YOU KNOW WHY ONLY MORONS CITE ACADEMIC STUDIES TO PROVE POINTS.


Poteshman said options could be useful, but commented, "I would probably think twice before buying an option that expires in a few days.''

GEE OPTIONS COULD BE USEFUL. BUT YOU NEVER TRADED THEM AND RECOMMEND RETAILERS DO NOT TOUCH THEM. THEN YOU SAY THE NO DUH ADVICE ABOUT BUYING OPTIONS THAT EXPIRE IN A FEW DAYS. PLEASE TELL ME THIS IS NOT A TOP 10 UNIVERSITY.


http://www.suntimes.com/output/business/cst-fin-cboe18.html
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nitro
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Agreed. A "pattern" transitions from exploitable to untradeable.

How about this though. Have you noticed some of the bizarre SPX settlements that come out of the opening prints? It's IMPOSSIBLE for me to believe that basis volatility like that isn't "purposeful" and because of it's opaqueness, impossible to gauge.
Quote from wilburbear:

It's not illegal to trade based on what your own intentions are. Carl Ichan, or some other big player, can go in and buy or sell all the options they want before they transact in the stock.

And experienced options players will laugh at this assertion: "The lazy man's way to riches: selling near-term options premium in size." Results might be disastrous.

Finally, this is another example of a phenomenon that has always amazed me. People supposedly find a repeatable example of some event that will happen in the future - and they are mad about it! If you find such an example you should certainly trade it. In the example given by the professors, if the relationship is so robust, they should sell options ahead of those who are "in the know", and go on to make their fortune.
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If I was big enough, believe me I would try to manipulate stocks, why wouldn't they?

Maybe I'm paranoid, I don't know. But the last 4-5 expirations on GOOG makes me think that my assumptions are correct.

ozzy

P.S You guys are going to think I'm crazy for saying this. But I also think a few institutions/HF's pulled GOOG down to 290 with pre hand knowledge of GOOG's earnings in order to snap up a shit load of options/shares at rock bottom prices.

P.P.S I'm not a conspiracy theorist in any way and I actually do not like ppl who are. But I think there are some shady things going on this business. Someone tell me I'm wrong.??

Quote from riskarb:

What a suprise. :eek:

The proverbial tail that wags the dog... selling vol and defending the strike. Happens routinely in otc markets, but virtually impossible to effect in large caps. Absurd study.
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we know that students are not as smart as they once use to be but now comes the revelation:"THEY NEVER TRADED OPTIONS SO THEY ARE QUALIFIED TO TELL PEOPLE NOT TO TRADE OPTIONS??? ARE PROFESSORS DUMBER THAN WHEN I WENT TO SCHOOL??? NOW YOU KNOW WHY ONLY MORONS CITE ACADEMIC STUDIES TO PROVE POINTS..

thx for the revelation:)
 
Quote from ozzy:


P.S You guys are going to think I'm crazy for saying this. But I also think a few institutions/HF's pulled GOOG down to 290 with pre hand knowledge of GOOG's earnings in order to snap up a shit load of options/shares at rock bottom prices.

Someone tell me I'm wrong.??
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Isn't it convenient that GOOG (340), SBUX (55) and others closed on the even money today. The researchers are correct.

......"Stock Price Clustering on Option Expiration Dates×
Sophie Xiaoyan Nia, Neil D. Pearsona,*, Allen M. Poteshmana
aUniversity of Illinois at Urbana-Champaign, Champaign, IL 61820, USA
August 27, 2004
Abstract
This paper presents striking evidence that option trading changes the prices of underlying stocks. In
particular, we show that on expiration dates the closing prices of stocks with listed options cluster at
option strike prices. On each expiration date, the returns of optionable stocks are altered by an
average of at least 16.5 basis points, which translates into aggregate market capitalization shifts on
the order of $9 billion. We provide evidence that hedge re-balancing by option market-makers and
stock price manipulation by firm proprietary traders contribute to the clustering......"
).
 
Quote from optioncoach:

Those who can, trade.. those who can't, teach and write academic papers about trading based on unrealistic assumptions and exclude human factors in trading...
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You're so right! It's much easier to write about trading based on unrealistic assumptions without the inclusion of human factors.
 
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