Spider Options and the S&P 500 Index Options Market

50 Pages Posted: 6 Feb 2007

See all articles by Gunther Capelle-Blancard

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); PSB Paris School of Business

Mo Chaudhury

McGill University - Desautels Faculty of Management

Date Written: January 31, 2007

Abstract

Using daily closing options data for the January 01, 2004 to June 30, 2005 period, we examine if the listing of Spider options on January 10, 2005 had any major impact on the quoted bid-ask spread, volume and implied volatility pattern of the S&P 500 Index options. Based on regression-based measures proposed in this paper, we find the call spread and volume to shrink, and the put spread and volume to rise, leading to a minor net volume decline in total. Consequently, index put transaction cost rises for the investors and the market makers enjoy a boost in revenue while the CBOE's fee revenue perhaps suffers a little. Considering spread and volume effects, the liquidity implication is uncertain. Pricing of the S&P 500 Index options is not affected as the implied volatility pattern remains largely in tact.

Keywords: S&P 500 Index Options, Spider Options, ETF, Volatility Smile

JEL Classification: G13

Suggested Citation

Capelle-Blancard, Gunther and Chaudhury, Mo, Spider Options and the S&P 500 Index Options Market (January 31, 2007). Available at SSRN: https://ssrn.com/abstract=960755 or http://dx.doi.org/10.2139/ssrn.960755

Gunther Capelle-Blancard

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

Mo Chaudhury (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A 1G5
Canada
(514) 398-5927 (Phone)
(514) 398-3876 (Fax)

HOME PAGE: http://www.mcgill.ca/desautels/mo-chaudhury

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