Economic Data Risk Premium In Short-term Options

Do economic data releases trigger predictably large returns in short-term equity index options? In their February 2024 paper entitled “Expected 1DTE Option Returns”, Michael Johannes, Andreas Kaeck, Norman Seeger and Neel Shah analyze returns to one-day-to-expiration (1DTE) S&P 500 Index options. They study 1DTE options rather than zero-day-to-expiration (0DTE) options to capture effects of market moves outside normal trading hours, with focus on economic data releases. Specifically, they calculate 1DTE option returns from 3:55 ET the day before expiration through expiration by moneyness based on quote midpoints. They calculate average option returns separately for days with and without certain economic data releases (CPI, FOMC statements, GDP and monthly payrolls) to assess the premium for the latter. They also analyze the variance risk premium (VRP) to disentangle volatility and economic data release effects. Using 5-minute intraday (9:30 am ET until 4:15 pm ET) quote data for S&P 500 Index options and S&P 500 Index levels, and economic variable announcement dates/times, from the beginning of January 2012 through early December 2023, they find that:

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