I show that the inventory risk faced by market-makers has a first-order effect on option prices. I introduce a simple approach that decomposes the price impact of trades into inventory risk and asymmetric information components. While both components are large for option trades, the inventory...

We find that short sale costs eliminate the abnormal profits generated by asset pricing anomalies. While many anomalies persist out-of-sample, they cannot be profitably exploited due to stock borrow fees. Using a comprehensive sample of 162 anomalies, we show that the average of these long-short...

Do order flows in index derivatives play an informational role? Weekly index put order flow on the International Securities Exchange positively and robustly predicts weekly S&P 500 index returns. This result obtains mainly for net put buying and is stronger in high VIX periods and in periods...

We study how the excess market return depends on the time of the day using E-mini S&P 500 futures that are actively traded for almost 24 hours. Strikingly, four hours around European open account for the entire average market return. This period's returns are consistently positive in every year,...

The option implied volatility spread and skew predict stock returns. These variables also reflect the expected cost of borrowing stock to sell short. The stock borrowing fee implied from options prices predicts changes in quoted borrowing fees and stock returns; however, the volatility spread...

Average returns for S&P 500 index options are negative and large: -0.7% per day. Strikingly, when we decompose these delta-hedged option returns into intraday (open-to-close) and overnight (close-to-open) components, we find that average overnight returns are -1%, but intraday returns are...