Impact of option dealer flows on equity returns
Jason D. DeLorenzo
Option dealer hedging is a major driver in market movements. This is apparent after analyzing the data both on a daily and intraday timeframe. We sought patterns between our proprietary option dealer positioning data (Volland) and market returns. We used standard scientific method practices to test the significance of our data. We conclude that option dealers are predominantly more sensitive to changes in implied volatility than to the movement in the underlying equity. On zero days to expiration (0DTE) observations, analyzing charm yields a significant edge when applied in the right time frame relative to expiration.