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I'm reading Options Markets by Cox and Rubinstein, and there's a section entitled Effects on Other Financial Markets. The section is less than a page long, and while it presents some findings of studies commissioned by the CBOE, that the options markets have "helped improve the efficiency and fairness of the stock market itself," the section ends by saying, "However, until these findings have been confirmed by investigators wholly independent of Exchange support, they cannot be viewed as definitive."

This book was published in 1985. Since that time, have any independent investigators attempted to answer this question?

I've often wondered how things like open interest and other "sentiment indicators" are perceived by market professionals. Do certain conditions in options markets influence professionals to trade in certain products or directions?

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Have any independent investigators attempted to answer this question?

I am not aware of any specifically.

I've often wondered how things like open interest and other "sentiment indicators" are perceived by market professionals.

Changes in Open Interest will give you some idea how much of the actively traded volume can be attributed to the options market. Many options participants will delta-hedge, which in turn creates additional volume and liquidity in the underlying market (e.g. if a 50% delta on average then 50 shares for every option contract traded).

Do certain conditions in options markets influence professionals to trade in certain products or directions?

Specific options trades that post to the tape and day to day changes in open interest can give the public an idea about what some people are 'betting' will happen to a given stock in the future, based on the positions, though these can be difficult to pick out from the noise.

Pricing of options may also reflect future dividend expectations and interest rates.

You may also find that there is increased liquidity in securities that have a liquid options market as people may prefer to trade securities where they have more 'tools' available. People may also use options to obtain additional leverage.

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