A moneyness-based propensity to sell (MPS) measure, at the aggregate level, determines the propensity of option holders to exercise their winning relative to losing positions. Using data on individual stock and S&P 500 Index options, we find that the MPS measure has significant predictive power over the cross section of delta-hedged option returns. We test the disposition effect in the options market based on a long–short strategy that exploits price distortions induced by the disposition bias. More pronounced evidence of the disposition bias is found for individual at-the-money call options than put options where the significance of abnormal returns remains robust across different subsamples even after we control for the portfolio option greeks and market-based risk factors. The profitability of the long–short strategy is related to limit-to-arbitrage proxies suggesting that behavioral explanations help explain the positive relation between the MPS measure and delta-hedged option returns.
|頁（從 - 到）||75-106|
|出版狀態||已出版 - 1 3月 2021|