Publication Type
Journal Article
Version
acceptedVersion
Publication Date
9-2023
Abstract
We use account-level transaction data to examine trading styles and profitability in a leading derivatives market. Approximately 66% of active retail investors predominantly hold simple, one-sided positions in only one class of options, whereas institutional investors are more likely to use complex strategies. Hypothesizing that the complexity of trading styles reflects investors' skills, we examine the effect of options trading styles on investment performance. We find that retail investors using simple strategies lose to the rest of the market. For both retail and institutional investors, selling volatility is the most successful strategy. We conclude that these style effects are persistent and cannot be fully explained by systematic risk exposure.
Keywords
Options, institutional investors, retail investors, trading styles, volatility
Discipline
Finance and Financial Management | Portfolio and Security Analysis
Research Areas
Finance
Publication
Management Science
ISSN
0025-1909
Identifier
10.1287/mnsc.2023.4916
Publisher
Institute for Operations Research and Management Sciences
Citation
HU, Jianfeng; KIRILOVA, Antonia; PARK, Gilbert Seongkyu; and RYU, Doojin..
Who profits from trading options?. (2023). Management Science.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7288
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1287/mnsc.2023.4916