Conclusions, implications, and future directions
Earnings announcements are first order important for option prices,
and option prices are highly useful for learning about future earnings
induced price volatility.
Important note of caution: individual firm options are quite different
from index options.
– Many papers are now using option IV’s to generate trading strategies for equities.
Since much of IV variation loads on EADs, these trading strategies will too
Event risk is most important at a firm level, but still very important for
macroeconomic markets. Other events?
– Macroeconomic events (FOMC, employment, etc.)
– Market specific events (crop reports, oil inventory announcements)
– Political events: Kelly, Pastor, and Veronesi (2015)
24