The Journal of Futures Markets, Vol. 20, No. 10, 971–987 (2000)
ᮊ 2000 by John Wiley & Sons, Inc.
between Index Option
Moneyness and Relative
THOMAS W. MILLER, JR.*
Previous research has implicitly assumed, or even suggested, that the
relationship between option moneyness and liquidity is quadratic with
liquidity maximized for at-the-money options. This study investigated
the nature of the relationship between moneyness and three liquidity
proxies for options on the Standard & Poor’s (S&P) 100 and S&P 500
indexes. With bid–ask spreads, volume and time between quotes as
liquidity proxies, statistical analysis rejected the hypothesis of a sim-
ple quadratic relationship between moneyness and liquidity in these
markets. Although liquidity was maximized near the money, liquidity
did not decrease symmetrically as option strikes moved deeper in the
money or deeper out of the money. ᭧ 2000 John Wiley & Sons, Inc.
Jrl Fut Mark 20:971–987, 2000
The authors thank Charles J. Corrado, John S. Howe, Bradford D. Jordan, Susan D. Jordan, Avraham
Kamara, Carolyn E. Miller, Richard Startz, and seminar participants at the University of Missouri
and Wichita State University for helpful comments and suggestions. Any remaining errors are the
responsibility of the authors.
*Correspondence author, Department of Finance, College of Business, University of Missouri, Co-
lumbia, MO 65211; e-mail: firstname.lastname@example.org.
Received January, 1997; Accepted April, 2000
Cheri Etling is an Assistant Professor of Finance in the College of Business at the
University of Tampa in Tampa, Florida.
Thomas W. Miller, Jr. is an Associate Professor of Finance in the College of Business
and Public Administration at the University of Missouri in Columbia, Missouri.