Half-day Momentum and Reversal in Stock Options

Do returns for U.S. stock options exhibit half-day momentum/reversal effects? In their August 2025 paper entitled “In Search of Seasonality in Intraday and Overnight Option Returns”, Turan Bali, Amit Goyal, Mathis Moerke and Florian Weigert examine momentum and reversal patterns in half-day (intraday and overnight) option returns. They specify intraday return as that from 10:00AM to 4:00PM EST and overnight return as that form 4:00PM to 10:30AM EST, calculated from bid-ask midpoints. These intervals take into consideration option price inefficiencies at the equity market open. They focus on individual stock options with moneyness below one and 5 to 50 days to expiration. They aggregate returns across different option contracts for each stock by averaging. They investigate exploitability via equal-weighted, daily reformed long-short momentum or reversal option portfolios based on extreme tenths (deciles) of average half-day option returns over the last five trading days. Using cleaned option and underlying stock data, excluding stocks priced under $5 as a liquidity screen, during January 2004 through December 2021, they find that: (more…)