Option Expiration Day Impact on Underlying Stock Return- A Study on the Swedish Option Market

Abstract: Research questions: Is there significant change in the stock return on option expiration dates in the underlying stock? Does the net open interest have an effect on the return of the underlying stock on option expiration day? Purpose: The purpose of the bachelor's thesis is to study whether there is a significant difference in the stock returns on option expiration dates in relation to the net open interest of the underlying stocks within the OMXS30 index. Methodology: A quantitative study using a deductive approach to statistically describe the relationship between the daily stock return with open interest and traded volume. Theoretical perspective: The theoretical framework consists of option theory and empirical research on the impact of option expiration on traded volume and stock return, together with the relationship between stock returns during the expiration week and the option volume. Result: Regression results show that months with high net open interest showed statistically significant results. November, which had low net open interest, showed no statistical significance. The null hypothesis could be rejected. The T-test also showed that the daily return on expiration day differs significantly from the average daily return during months except November. Conclusions: Since the regression results show an R-squared above 0.1, we can conclude that there is statistical significance that a larger volume of open option contracts corresponds to a stronger correlation. We also saw the opposite in November, when a low net open interest showed low correlation. However, the correlation shows that traded volume and number of open contracts are not sufficient variables on their own to predict future returns.