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Consolidating Information In Option Transactions, Richard Holowczak, Jianfeng Hu, Liuren Wu
Consolidating Information In Option Transactions, Richard Holowczak, Jianfeng Hu, Liuren Wu
Research Collection Lee Kong Chian School Of Business
Underlying each stock trades hundreds of options at different strike prices and maturities. The order flows from these option transactions reveal important information about the underlying stock price. How to aggregate the trade information of different option contracts underlying the same stock presents an interesting and important question for developing microstructure theories and price discovery mechanisms in the derivatives markets. This paper takes options on QQQQ, the Nasdaq 100 tracking stock, as an example and examines different order flow consolidation mechanisms in terms of their effectiveness in extracting information about the underlying stock price and volatility movements. The analysis leads …