The Information in Hedge Fund Option Holdings

Management Science, forthcoming

47 Pages Posted: 29 Nov 2017 Last revised: 2 May 2023

See all articles by Amber Anand

Amber Anand

Syracuse University - Whitman School of Management

Jian Hua

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Andy Puckett

University of Tennessee, Knoxville

Date Written: September 28, 2022

Abstract

We provide new insights on how hedge funds use options and short selling channels to trade on their negative information. Bearish information in hedge fund option positions is economically large, distinct from information in short interest, and it is the combination of option positions and short interest that provide the strongest information signal. A portfolio of stocks with high short interest and bearish hedge fund options positions predicts negative abnormal returns that are more than four times as large as the portfolio with high short interest and bullish options positions. The information in hedge fund option positions increases during periods of market stress, while that in short interest does not. This increase is concentrated in capital-constrained hedge funds, suggesting that options provide a channel for capital-constrained hedge funds to exploit their information advantage.

Keywords: Institutional Trading, Informed Traders, Options Markets

JEL Classification: G14, G20

Suggested Citation

Anand, Amber and Hua, Jian and Puckett, Andy, The Information in Hedge Fund Option Holdings (September 28, 2022). Management Science, forthcoming, Available at SSRN: https://ssrn.com/abstract=3078061 or http://dx.doi.org/10.2139/ssrn.3078061

Amber Anand (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244
United States

Jian Hua

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Andy Puckett

University of Tennessee, Knoxville ( email )

437 Stokely Managment Center
Knoxville, TN 37996
United States

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