What options to trade and when: Evidence from seasoned equity offerings

We investigate options predictability and trading patterns around seasoned equity offerings (SEOs). A negative relation is found between option-implied skewness and post-SEO performance, which is more significant for highly overvalued SEOs. In terms of investment timing, the option-implied skewness reflects long-run information before the equity issuances, while short-run information is updated as the issuance nears. For investment horizon measured by time to expiration (TTE), options with long TTEs have only long-run predictability, while options with short TTEs have only short-run predictability. This study supports informed options trading and helps to clarify options informativeness for various estimation periods and TTEs.