Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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A Study on the Option Selection of Informed Traders: A Case of Korean Index Options

정보거래자의 옵션 선택에 관한 연구: 한국의 지수옵션시장을 중심으로

  • Byung-Wook Choi (Department of Business Administration, Konkuk University)
  • Received : 2023.02.28
  • Accepted : 2023.04.11
  • Published : 2023.06.30
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Abstract

Purpose - The purpose of this study is to examine the option selection and optimal trading of informed traders in KOSPI 200 options market based on the PIN (probability of informed trading) model of Easley et al.(2002). Design/methodology/approach - This study uses TAQ (trade and quote) data provided by Korean Exchanges (KRX) which contains all the bids and trades recorded during the continuous auction trading hours for the KOSPI 200 options between May 2019 and September 2020. Findings - First, there was no difference in the PIN between call and put options in the 2019 data, but the PIN of put options was slightly higher in 2020. Second, regardless of the type of option, the PIN was higher for in-the-money (ITM) options, and the PIN of out-of-the-money (OTM) options was the same as or slightly higher than that of at-the-money (ATM) options. Third, we found that the PIN decreases as trading liquidity increases, and fourth, the PIN increased sharply as the expiration date approached, especially for OTM options, while ITM and ATM options showed relatively weak effects. Fifth, for foreign and institutional investors, the periodicity of orders was observed in milliseconds, especially for foreign investors, where the periodicity of orders was clear and frequent in OTM options. The results suggest that the purpose of option trading varies depending on the moneyness from the perspective of the informed trader.

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