Based on Johnson and So , we construct a portfolio based on the ratio of trading volume of the stock option to its underlying stock (O/S). We compare the profitability of the OS strategy with those of 52-week highs, trading volume, and price momentum strategies to examine whether OS investment returns are more profitable. We find that the longer holding period is associated with the better the OS strategy to earn returns. Thus, the OS strategy is more suitable for long-term investment. The return of the OS strategy is higher than that of the trading volume strategy. The longer the holding period, the greater the gap is. In long-term investment, return of OS strategy is higher than that of the 52-week high and price momentum strategy. Given the investment period is more than one year, we find that the OS strategy can indeed help investors make profits, and its return is higher than other strategies.
JEL classification numbers: G11, G12
Keywords: OS strategy, 52-week highs strategy, trading volume strategy, and price momentum strategy, option volume