||Forecasting Taiwanese Stock Market Based on the Open Interest on the Futures Option
||Institute of International Management (IIMBA--Master)(on the job class)
Taiwanese Index Futures Option
In recent years, Taiwanese Index Futures Option has drawn most investors’ attention and more and more investors join the Taiwan Index Futures Option market. Taiwan Index Futures option’s characteristics, limited risk and diploid profit, makes a lot of ordinary investors have dreams of being millionaires. However, in Taiwanese derivatives market, to be an ordinary investor is difficult to make money when trading with professional traders or institutes like banks or trust funds. In Sharleen’s book, Volume and open interest: cutting edge trading strategies in the futures markets (1991), he suggested that volume and open interest are important indicators when trading in derivatives market; according to the foreign empirical studies, it also proves that open interests is more referential that other passive indicators.
The first purpose of this research is to detect the changes in option market as trading references to help investors make decisions in Taiwanese stock market and derivatives market. By using one function of derivatives market, price discovery, we can forecast the price trend in the spot market. So, we can increase the probability of profitability. The second purpose of this research is to offer a warning signal for investors when there are extraordinary trading situation happened in option market.
TABLE OF CONTENTS VI
LIST OF TABLES VIII
LIST OF FIGURES IX
CHAPTER ONE INTRODUCTION 1
1.1 Research Background 1
1.2 Research Motivation 2
1.3 Research Questions 5
1.4 Research Purpose 6
1.5 Structure of Research 7
CHAPTER TWO LITERATURE REVIEW 10
2.1 Rationale: “Volume and Open Interest” by Kenneth H. Shaleen 10
2.2 Empirical Experiences of Foreign Option Market 12
CHAPTER THREE RESEARCH DESIGN AND METHODOLOGY 18
3.1 Introduction: Qualitative Method 18
3.2 Empirical Evidence 21
3.3 Research Focus, Data Resource, and Limitation of Data Analysis 22
3.3.1 Research Focus and Data Source 22
3.3.2 Limitation of Data Analysis 23
3.4 Data Analysis Procedure 24
3.5 Pilot Study 25
CHAPTER FOUR RESEARCH FINDINGS 28
4.1 Introduction 28
4.1.1 Screening 28
4.1.2 Arranging 29
4.1.3 Analysis 29
4.2 Findings 31
4.2.1 The Long Side Market 31
4.2.2 The Short Side Market 42
4.3 Special Event 46
4.4 Simulation 48
CHAPTER FIVE CONCLUSIONS AND TRADING SUGGESTION 53
5.1 Conclusion / Suggestion 53
5.2 Recommendation For Future Research 55
Appendix 1. Stable Short Side Market: Call 60
Appendix 2. Stable Short Side Market: Put 74
Appendix 3. Unstable Short Side Market: Call 90
Appendix 4. Unstable Short Side Market: Put 93
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