College of Business: University of Illinois at Urbana-Champaign

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Stock Price and Strike Price


Allen Poteshman.Neil Pearson.A May 7 article by Mark Hulbert for the Your Money section of the New York Times online featured research by Associate Professor Allen Poteshman (left), Professor Neil Pearson (right), and PhD student Sophie Ni. In an article titled "The Mystery of the Stock Price," Hulbert explored a project that looked at trading patterns of stocks close to the options expiration date. Said Hulbert:

"So many options traders lose money that they have grown to suspect they are not operating on a level playing field. A recent academic study provides them with some potentially powerful ammunition.

The study, "Stock Price Clustering on Option Expiration Dates," appeared last October in The Journal of Financial Economics. Its authors are Neil D. Pearson and Allen M. Poteshman, both finance professors at the University of Illinois, and Sophie Xiaoyan Ni, a Ph.D. student there. The researchers focused on unusual trading patterns of stocks when options on them were expiring. They found an increased likelihood that a stock would close on the options expiration day at or very near the strike price of one of its expiring options. ... 

In effect, the researchers found that the closing prices of stocks that have options were not randomly distributed on expiration days, but instead tended to cluster around the strike prices of certain of their options."




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