The Relationship between Stock Liquidity Dimensions and Put Option Volume as a New Financial Instrument

Abstract

The aim of this study was to evaluate the relationship between stock liquidity dimensions and put option volume vas a new financial instrument in Iran. For this purpose, the data about companies listed in Tehran Stock Exchange whose put option was published had been collected. In this study, the dimensions of stock liquidity are the independent variable and the volume of put option is the dependent variable. The difference between buy and sell proposed stocks price, market depth and the number of transactions were used to measure stock liquidity. According to stock liquidity metrics, three hypotheses have been developed. It is found the there is no relationship between bid ask spread and market depth with put option volume but a positive relationship between the number of transactions and the liquidity of put option was observed. The results show that in Iran in contrast with the previous research, shareholders do not pay attention to liquidity stock when they want to buy put option but do it just for covering risk management.

Keywords

• Bid Ask Spread
• Liquidity
• Market Depth
• Put Option
• Risk management