Information embedded in options open interest and their utility in directional trading
by Avinash; T. Mallikarjunappa
Asian J. of Management Science and Applications (AJMSA), Vol. 3, No. 4, 2018

Abstract: This paper investigates whether information embedded in open interest is informative in directional trading using daily data on Nifty50 options and ten popular company stock options listed at NSE for the financial year between 2011 and 2016. We then predicted stock price at the option's expiration based on OI distribution. We assume option market is informationally efficient based on empirical evidence and then compare the performance of three directional trading strategies with its non-directional variant. The results show that the OI-based active strategies perform better than passive strategies and hence, they can be used to predict the direction of price movement and to strategise direction-based trading using stock and options.

Online publication date: Tue, 09-Apr-2019

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