Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
958762 | Journal of Empirical Finance | 2014 | 18 Pages |
•We document stock returns on option expiration dates.•Stocks with large amounts of deeply in-the-money call options earn−0.8% daily returns on expiration dates.•We attribute the negative returns to the selling pressure in the stock market.•Selling pressure is from call option buyers exercising deeply in-the-money calls and selling the acquired stocks immediately.•This selling pressure is not offset by option writers' purchases or put option rebalancing.
This paper documents striking evidence that stocks with a sufficiently large amount of deeply in-the-money call options experience a significant return drop of 0.8 percentage point on option expiration dates; this price movement is then followed by a short-term reversal. We attribute the negative returns to the selling pressure from call option buyers who exercise deeply in-the-money calls and sell the acquired stocks immediately. This selling pressure is offset neither by parallel option writers' purchases nor by put option rebalancing on the opposite end.