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Is There an Options Sentiment Factor?

We examine the trading activity and pricing structure in the equity options market to infer the sentiment of options traders on the underlying equity. We find that metrics constructed from the level of options trading activity relative to the underlying stock and from comparing the pricing of puts relative to calls at various moneyness levels have implications for the cross section of stock returns. Importantly, we also find that the information in options sentiment is additive and orthogonal to what is explained by other common style factors such as value and momentum, or by other measures of sentiment such as those derived from short interest or analyst revisions.