Open-interest-weighted moneyness

Where the standing book sits relative to spot, with each strike counted in proportion to the money held at it.

K is the strike, S the spot, and the weight is open interest times the contract's mid price — the dollars standing at that strike. A reading above 1.0 means the weight of the book sits above spot.

The measure this is derived from

Bergsma, Csapi, Diavatopoulos and Fodor (2020) construct the same average using dollar volume as the weight — contracts traded times mid — and find stock returns increase with it, reporting five-factor alphas of 12% a year across all stocks and 33% a year among high-implied-volatility names over 2006–2017.

Their reasoning is that informed traders prefer out-of-the-money options for leverage, so a book whose weight sits further above spot reflects more informed bullish positioning.

What we changed, and why it is labelled

We substitute open interest for volume in the weight. That converts a flow measure into a stock measure: the published version describes where the day's trading concentrated, ours describes where the surviving position sits.

This substitution is untested. We have not seen it evaluated in the literature and we have not published a backtest of it. The alphas above belong to the volume-weighted construction and should not be read across to this one. It is shown because the stock version answers a question the flow version cannot, not because it inherits the flow version's evidence.

Index products are anchored on delta

Index options are not always quoted against a usable spot, so K ÷ S is not always computable for them. Where spot is unavailable we anchor moneyness on delta instead, taking an absolute delta near 0.50 as at-the-money. The measure is then a delta-weighted position of the book rather than a strike ratio, and is labelled as such where it appears.

Sources

Bergsma, Kelley, Vivien Csapi, Dean Diavatopoulos, and Andy Fodor. "Show Me the Money: Option Moneyness Concentration and Future Stock Returns." Journal of Futures Markets 40, no. 5 (2020): 761–775. The dollar-volume-weighted average moneyness construction, the informed-trader leverage rationale, and the reported five-factor alphas. The open-interest weighting on this page is our own substitution and is not part of that paper.