Publication Type

Journal Article

Version

acceptedVersion

Publication Date

7-2024

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

Volume

70

Issue

7

First Page

4742

Last Page

4761

ISSN

0025-1909

Identifier

10.1287/mnsc.2023.4916

Publisher

Institute for Operations Research and Management Sciences

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1287/mnsc.2023.4916

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