According to Cremers and Weinbaum , we
compute the implied volatility spread by option put-call parity theory. Then,
we build strategy based on implied volatility spread and compares it with OS,
52-week high, and contrarian investment strategies to explore whether the investment
performance of the implied-volatility-spread based strategy is better than
other strategies. Moreover, we combine the implied-volatility-spread based
strategy with other strategies to form the two-dimensional investment strategy
to explore whether the performance of two-dimensional implied-volatility-spread
strategy is better than one-dimensional implied-volatility-spread strategy. The
empirical results show that it needs more than one year of investment horizon
to get positive abnormal return by implied-volatility-spread based strategy.
Otherwise, it will only receive negative abnormal return when the investment
horizon is less than one year. In addition, two-dimensional strategy improves
bad performance of one-dimensional strategy. After combining the contrarian
52-week high and contrarian investment strategy with implied-volatility-spread
strategy, we find that there is the best strategic effect when the holding
period is 12 months. Nevertheless, the abnormal returns decrease after the holding
period is 24 months.
JEL classification numbers: G11, G12.
Keywords: Implied-volatility-spread, OS strategy, 52-week highs
strategy, Trading volume strategy, Price momentum strategy, Option volume.