Single stock options market dynamics around earnings announcements: Evidence from India

• In Event: 11.01. Earnings Announcements: Information Content and Earnings Management

Abstract

We study the Indian single stock options volatility (IV) and volume dynamics around earnings announcements (EA). Our results show that IV across strikes is higher in the EA months than in other months. Both volatility and relative option-to-spot and option-to-futures volume increase monotonically, leading to the EA day and decreases after the EA, confirming the uncertainty resolution role of EA and investors preference of SSO markets over spot and futures markets. The ability of IV curve skew and put-to-call volume ratio to predict the sign of the EA surprise increases closer to the EA, indicating the possibility of informed trading in the options market before the EA.

Authors

• Sumit Saurav, Indian Institute of Management Ahmedabad

• Sobhesh Kumar Agarwalla, Indian Institute of Management Ahmedabad

• Jayanth R. Varma, Indian Institute of Management Ahmedabad