Detecting Informed Trading Activities in the Options Markets: Appendix on Subprime Financial Crisis

Abstract

This supplemental appendix extends the empirical results in the main paper. Abnormal trading activities on call and put options are analyzed for 19 companies in the banking and insurance sectors from January 1996 to September 2009. Our empirical findings suggest that certain events such as the takeovers of AIG and Fannie Mae/Freddie Mac, the collapse of Bear Stearns Corporation and public announcements of large losses/writedowns are preceded by abnormal trading activities in call and put options. The realized gains amount to several hundreds of millions of dollars. Several cases are discussed in detail.