Usage of Stock Index Options: Evidence from the Italian Market

Abstract

The paper addresses the question of the usage of stock index option, with reference to both directional strategies and volatility based strategies. The issue of the paper is twofold. Firstly there is a full analysis of possible strategy implementation with reference to the underlying price and volatility expectations. In this section we depict a complete “map” of the potential decision-making processes involved in option trading, according to the relevant expectations. Secondly, the analytical model is applied to the Italian Stock Index Option Market, with the final aim to identify which strategy prevails within the market.

Keywords: Option strategies, option trading, convexity gains

JEL Classification: G12, G13