Option volume, strike distribution, and foreign exchange rate movements

Option volume, strike distribution, and foreign exchange rate movements Using Deutschmark currency option data from the Philadelphia Stock Exchange and British pound option data from the Chicago Mercantile Exchange, this article examines the signaling quality of option volume measures on movements in the underlying spot exchange rates. The concept of a volume-weighted strike distribution is proposed. It is demonstrated that measures using the strike distribution are inherently better predictors of both direction and volatility of the exchange rate movements as compared to their more traditional counterparts used in practice, such as the put-call ratio. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Option volume, strike distribution, and foreign exchange rate movements

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Publisher
Springer US
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-007-0041-z
Publisher site
See Article on Publisher Site

Abstract

Using Deutschmark currency option data from the Philadelphia Stock Exchange and British pound option data from the Chicago Mercantile Exchange, this article examines the signaling quality of option volume measures on movements in the underlying spot exchange rates. The concept of a volume-weighted strike distribution is proposed. It is demonstrated that measures using the strike distribution are inherently better predictors of both direction and volatility of the exchange rate movements as compared to their more traditional counterparts used in practice, such as the put-call ratio.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 22, 2007

References

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