The Impact of Call and Put Options Trading Volume on Firm Value

[[abstract]]This paper investigates the relation between call and put options trading volume and firm value during 1997-2007. Roll, Schwarz and Subrahmanyam (2009) found that there is a positive relation between option trading activities and firm value. However, there might have some space for further analysis: call and put options might present different implication separately on firm value. Thus, this paper uses call options / put options volume ratio (C/P) and put options / call options volume ratio (P/C) to measure whether firms with more call (put) options than put (call) options volume have higher (decreasing) firm value. We also take firm size and different industry into consideration. Empirical results indicate that C/P ratio is positively and significantly correlated with Tobin’s q. Moreover, q also depends on the relation between size effect, C/P and P/C ratio. C/P ratio is so powerful that it will not be affected by different industries. Our results are valid after using several robustness checks