PT  - JOURNAL ARTICLE
AU  - Rafiqul Bhuyan
AU  - Patricia A. Cheshier
AU  - Denver H. Travis
TI  - LEAPS of Faith: <em>A Trading Indicator Based on CBOE S&P 500 LEAPS Option Open Interest Information</em>
AID  - 10.3905/joi.2010.19.2.085
DP  - 2010 May 31
TA  - The Journal of Investing
PG  - 85--94
VI  - 19
IP  - 2
4099  - https://pm-research.com/content/19/2/85.short
4100  - https://pm-research.com/content/19/2/85.full
AB  - A long-standing debate has revolved around the question of whether information travels first to the stock market or to the stock options market. Using an open interest-based predictor calculated from CBOE S&P 500 LEAPS options, we find evidence of strong predictive power from the options market on the underlying S&P 500 index. This evidence is supported by out-of-sample tests of a simple trading strategy using the open interest-based predictor as a trading indicator. The authors illustrate the practical application of this strategy for an active manager using exchange-traded funds with a variety of leverage and shorting constraints. The trading indicator is also shown to be useful for a semi-active manager employing enhanced indexing techniques.TOPICS: Mutual fund performance, mutual funds/passive investing/indexing, exchange-traded funds and applications