The impacts of index options on the underlying stocks: The case of the S&P 100

Existing theories predict lower trading volume, but ambiguous changes in price, bid-ask spread, and volatility for the underlying stocks following the advent of index derivatives. We further test these predictions around the introduction of the S&P 100 options in March 1983. Controlling for known factors respectively, we find that the listing of the S&P 100 options results in lower volume, spread, and volatility, but no price change for the underlying stocks, contrasting with the existing U.S. evidence and supporting the notion that the arrival of index derivatives induces informed and speculative portfolio traders to migrate from the underlying market to the derivatives market.