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Annual Review of Financial Economics

Volume 12, 2020

Informed Options Trading Before Corporate Events

Abstract

There is sufficient evidence in the popular, legal, and financial literatures that informed options trading ahead of scheduled and unexpected corporate events is pervasive. In this review, we piece together the extant evidence on this topic into a cohesive picture, which includes abnormal activity ahead of announcements of earnings, mergers and acquisitions, as well as numerous other corporate events. We also discuss the more limited evidence on informed trading in other derivatives markets, such as credit default swaps. In addition, we characterize the impact and features of illegal insider trading and insider trading networks. We also provide a brief overview of the legal framework in the United States concerning legal and illegal insider trading to emphasize the challenges associated with identifying informed options trading. We end with our suggestions regarding future research opportunities in this broad topic.

Keyword(s): civil litigations, derivatives, information, insider trading, JEL G1, JEL G2, JEL G3, JEL K22, JEL K4, mergers and acquisitions, options, regulation
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2020-11-01
2024-04-19
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Informed Options Trading Before Corporate Events
Annual Review of Financial Economics 12, 327 (2020); https://doi.org/10.1146/annurev-financial-012820-033052
/content/journals/10.1146/annurev-financial-012820-033052
/content/journals/10.1146/annurev-financial-012820-033052
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