Options
Niclas Robin Käfer
Recovering from Shocks: Term Structure Signalling in Commodity Markets *
Option Factor Momentum
2023-09-20
,
Adams, Zeno
,
Burdorf, Tom
,
Käfer, Niclas
We examine the behaviour of commodity term structures following economic shocks. The response of the futures curve in the near term, relative to the front-month future, reflects market expectations about the type, magnitude, and persistence of a shock. These market expectations have predictive power for the recovery time after a shock. Our findings challenge the current view that term structures in commodity markets cannot contain market expectations due to arbitrage forces of the carry trade.
2023-04-13
,
Niclas Robin Käfer
,
Mathis Rudolf Werner Mörke
,
Tobias Wiest
We document profitable cross-sectional and time-series momentum in 56 option factors constructed from monthly sorts on daily delta-hedged option positions. Option factor returns are highly autocorrelated, but momentum profits of strategies with longer formation periods are mainly driven by high mean returns that persistently differ across factors. Momentum effects are the strongest in the factors' largest principal components, consistent with findings for stock factor momentum. Finally, we find a new form of momentum in options markets: momentum in single delta-hedged option returns. Option factor momentum fully subsumes option momentum, whereas option momentum cannot explain option factor momentum. Our findings provide insights into the channels that drive option momentum and have implications for designing profitable option trading strategies.