An Empirical Study of Time Value for Nearby Month TXO

• Main Authors: Yuan Chun Yu, 余遠鈞
• Other Authors: Y. W. Shyu
• Format: Others
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/50074389963510053441

碩士 === 長庚大學 === 商管專業學院碩士學位學程在職專班財務金融組 === 102 === The aim of the thesis is to investigate the phenomenon of time value decay and the affected factors of time value for nearby month TXO, moreover to analyze the proper options trading strategy once big deviation occurred between TXO premium and theoretical price. The empirical data includes 2008-2009 and 2011-13 two periods, which covers 48 months daily transaction data for spot and next spot month contract. These data will be classified by different period, buy or call options, in the money or out of the money options during analysis. The empirical results are described as follows: The phenomenon of time value decay is proved for both call and put party. During TXO time value affected factor analysis the transaction day, open interest, price deviation and moneyness will affect time value significantly, and the key factor to affect time value are transaction day and moneyness in all options contract. To analyze from the viewpoint of in the money and out of the money options, the most important factor to affect time value is transaction day. Open interest and price deviation will affect out of the money options significant than in the money options, and open interest and price deviation will be the key index for trading out of the money put options. To analyze from the viewpoint of different period, open interest and price deviation will affect time value significantly during high variation period. Most investors willing to pay high options time value since they expect the market will continue varying when big deviation occurred. As a result of the variation lower than expected, the buy party will lose time value finally and may lose premium as well. Regarding the analysis of options trading strategy, selling straddle and selling strangle are better trading strategies especially selling strangle strategy with two or three pan spreads are the most profitable combination. Both selling straddle and selling strangle are the proper trading strategies to gain time value decay profit on big deviation.