![]() “We find that stocks with truly ‘unusual option activity’ in call options do have positive abnormal returns in the weeks following the activity.” “CNBC coverage induces investors to overreact and destabilizes the price discovery process,” they said in the paper. But they subsequently turn into losses, according to their findings. They found that the abnormal returns in the underlying stocks increase at the time of CNBC’s coverage, as trading volume is spiking, and remain positive in the days that follow. While stocks with “unusual option activity” tend to see a significant rise on the day of CNBC’s coverage, “these same stocks have negative long run cumulative abnormal returns,” the researchers said. “We find that the trades that are covered on CNBC are not very unusual and thus do not produce abnormal returns.”įollowing the so-called “smart money” based on the program’s recommendations doesn’t produce profits for investors over the longer term, according to the paper. “We test these predictions to see if retail investors really can follow these trades and make abnormal returns,” the researchers said. The belief is that “only informed investors would take such large highly levered positions,” the authors said, serving as a predictor of stock returns. The ‘Unusual Option Activity’ segment of CNBC’s “Fast Money: Halftime Report” prompts an “immediate spike in trading volume,” as investors react to commentators pointing to a few stocks with abnormally large option trades earlier in the day, according to the paper. Strong, who conducted the research at the university before joining the SEC last month, declined to comment on the findings. ![]() “Our findings suggest that the CNBC coverage of unusual option activity has a destabilizing effect on underlying stock prices and investors cannot profit by simply following the CNBC reporting on the ‘smart money,’” Washington State University finance professor George Jiang and Cuyler Strong of the Securities and Exchange Commission said in a June paper. ![]() Options trading may be a good predictor of stock returns - but investors should be wary of trying to profit from the unusual options activity regularly covered by CNBC’s “Fast Money,” according to researchers. ![]()
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