Using Option Prices and Open Interest to Forecast Future Volatility of a Small Cap Biotech Security Facing a Binary Event
Date of Award
Master of Science in Finance
James W. Boyd
Edward L. Morris
The purpose of this study is to determine the accuracy of price targets set by options traders for small cap biotech companies approaching a Food and Drug (FDA) event. The study also highlights whether or not an increase in open interest improves the accuracy of options traders target price estimates. The thesis for this paper states that the options estimates of future price movement are accurate predictors of the future price one day before the FDA event. This thesis studies small cap biotech stocks with an approaching FDA approval or advisory committee meeting for the time period of December 2007 to April 201 3. The conclusions are that the price targets are significantly greater than the realized price. and that open interest does not significantly improve the accuracy of these contracts.
Abbott, Chris, "Using Option Prices and Open Interest to Forecast Future Volatility of a Small Cap Biotech Security Facing a Binary Event" (2013). Theses. 399.
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