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S&P 500 Options Returns: Bull and Bear Markets
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Resumo(s)
An option consists in a financial contract between two parties, the buyer and the seller. These
types of contracts provide its holder the right (but not the obligation) to buy or to sell a certain
pre-established quantity of the underlying, under a pre-established price condition within a
determined period, as described in Black and Scholes [2]. As for the seller of the option, if the
buyer decides to exercise the contract, he must deliver or acquire the underlying asset at the
pre-established conditions of the contract.
Back in 2001, Coval and Shumway [5] provided the first ever published paper focused on
the returns of option contracts. But does their methodology/propositions still hold with a
more up-to-date database? Do option returns react differently if the market is growing or
crashing?
In this thesis we implement the method of calculation for options returns from Coval and
Shumway [5] on the S&P500 index options over a 15-year period, from January 2004 to April
2019. During this period we identify three Bull cycles and three Bear cycles on the financial
markets by analysing the evolution of the S&P500 prices.
We find similar results as the ones found in Coval and Shumway [5] and analyse the daily
option returns under the index. We also make a more detailed analysis in what are the main
discrepancies between the returns of Call and Put options in Bull vs Bear cycles.
Descrição
Tese de mestrado, Matemática Financeira, 2021, Universidade de Lisboa, Faculdade de Ciências
Palavras-chave
Retornos de opções Mercados Bull Mercados Bear Opções sobre S&P500 Teses de mestrado - 2021