Name
Mind the Gap: Continuous Volatility Gaps and Option Momentum
Date & Time
Tuesday, July 7, 2026, 11:30 AM - 11:55 AM
Description

     We develop a measure to capture the continuous arrivals of information about the realized-implied volatility gaps (CVG) and show that CVG can explain option momentum. Particularly, option momentum strengthens in CVG during the formation period, supporting the hypothesis that investors are inattentive to continuous information. Conversely, discrete volatility gaps induce strong option price adjustments that attenuate momentum. The monthly momentum profitability monotonically increases from 2.02% for options with discrete information (low-CVG) to 9.10% for options with continuous information (high-CVG). Furthermore, CVG helps explain long-run option momentum. Our explanation based on CVG is robust after considering alternative explanations for momentum and is not driven by stock-return-based continuous information nor option factor momentum. To exploit momentum profitability in the options market, investors should “mind the gap”

Van Quoc Thinh Nguyen
Keywords
Volatility gap; Option momentum; Long-run momentum; Investor attention; Continuous information
Theme
ASSET PRICING
Author 1
Quan Gan
Author 2
Van Quoc Thinh Nguyen