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We examine which categories of option trading volume carry information about future stock prices around corporate news announcements. We predict and find that purchases of options are informative on news days and ahead of unscheduled events but not before scheduled events, and sales of options predict returns only ahead of scheduled news releases. Therefore, although the arrival of new information is an important reason why option volume predicts stock returns, this relation depends on whether the information is scheduled or unscheduled because only the former affects volatility and thus option prices. We also study how trading costs and margin costs affect ex post profitability around news. This paper was accepted by Karl Diether, finance. Funding: D. Weinbaum gratefully acknowledges research support from the Harris Fellowship in Finance. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.4543 .
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Papers that cite the same references — the relational fallback while embeddings are still backfilling.
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