TY  - JOUR
AU  - Pan,Jun
AU  - Poteshman,Allen
TI  - The Information of Option Volume for Future Stock Prices
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10925
PY  - 2004
Y2  - November 2004
UR  - http://www.nber.org/papers/w10925
L1  - http://www.nber.org/papers/w10925.pdf
N1  - Author contact info:
Jun Pan
MIT Sloan School of Management
100 Main Street, E62-624
Cambridge, MA 02142
Tel: 617/253-3083
Fax: 617/258-6855
E-Mail: junpan@mit.edu

Allen Poteshman
D.E. Shaw & Co.
39th Floor, Tower 45
120 West Forty-Fifth Street
New York, NY  10036
Tel: (217) 778-6064
E-Mail: poteshman@gmail.com
AB  - We present strong evidence that option trading volume contains information about future stock price movements. Taking advantage of a unique dataset from the Chicago Board Options Exchange, we construct put-call ratios from option volume initiated by buyers to open new positions. On a risk-adjusted basis, stocks with low put-call ratios outperform stocks with high put-call ratios by more than 40 basis points on the next day and more than 1% over the next week. Partitioning our option signals into components that are publicly and non-publicly observable, we find that the economic source of this predictability is non-public information possessed by option traders rather than market inefficiency. We also find greater predictability from option signals for stocks with higher concentrations of informed traders and from option contracts with greater leverage.
ER  -