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Abstract
This article examines the option investors’ risk preferences and trading motivations that underlie option trading behaviours using adjusted moneyness when initial moneyness has been influenced by the time-to-maturity effect during the contract period. The statistics for the stationary time series of adjusted moneyness reveal that both call and put option investors essentially prefer to trade At-The-Money (ATM) options. The regression models for testing six hypotheses confirm that call and put option investors have significant risk aversion preferences and expectations of market reversion. Put option investors’ trading motivation involves hedging their long and short futures positions by a way of portfolio management, such as the establishment of portfolio insurance or covered options. The motivation underlying the call option trading behaviour is still ambiguous, however.
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