Empirical Study On The Influence Of Trading In Commodity Option Markets On Futures Prices

With the development of exchange-traded derivatives market,the factors affecting the price of commodity futures have become a common concern in academic and business circles.Existing research has mainly focused on the price predictors from futures market itself.Price discovery ability of options on futures needs to be further explored.This paper starts from the U.S.commodity derivatives market with abundant data,studies how commodity options trading impacts futures prices,and further understands the relationship of transactions and prices between futures and options market.It is also of significance for the development and opening of Chinese commodity derivatives market.Taking the change of net long position between current and previous week as independent variable,this paper divides market participants into two types,speculators and hedgers,according to transaction purpose,and conduct regression analysis respectively.First,controlling futures net long position,analyze whether options net long position can predict futures price in the next week,so as to illustrate the short-term effect of options on futures price.Second,since speculators generally adopt a momentum strategy,this paper decompose speculators’ net long positions by momentum,and analyze whether this method can improve prediction performance.Finally,the ability of options to predict forward futures price is analyzed.The results show that hedgers’ options net long position has a positive predictive ability for the next-week futures price,while speculators’ options net long position has a negative predictive ability for that.The valid price discovery function in speculator’s options net long position change lies in the non-momentum portion,and the momentum decomposition method improves prediction performance.In the long run,predictive ability of hedgers’ and speculators’ options net long position can last for five weeks and one week respectively,then fade in longer-term.The conclusion that options have the independent ability to discover futures prices confirms the assumption that options traders have an information advantage.