Critical Finance Review > Vol 10 > Issue 1

The Supply and Demand of S&P 500 Put Options

George M. Constantinides, University of Chicago and NBER, USA, , Lei Lian, Morgan Stanley & Co., USA,
Suggested Citation
George M. Constantinides and Lei Lian (2021), "The Supply and Demand of S&P 500 Put Options", Critical Finance Review: Vol. 10: No. 1, pp 1-20.

Publication Date: 01 Apr 2021
© 2021 George M. Constantinides and Lei Lian
S&P 500 optionsNet buyOption supply and demandMarket makers


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In this article:
1. Introduction 
2. Description of the Data and Summary Statistics 
3. A Model of the Supply and Demand for Index Puts 
4. Empirical Evidence 
5. Concluding Remarks 


We model the supply of at-the-money (ATM) and out-of-the-money (OTM) S&P 500 index put options by risk-averse market makers (MMs) and their demand by risk-averse customers who hold the index and a risk free asset and buy puts as downside-risk protection. In equilibrium MMs are net sellers and customers are net buyers of index puts. Consistent with the data, the model-implied net buy of puts by customers is decreasing in the risk and put prices because the shift to the left of the supply curve dominates the shift to the right of the demand curve. The observed time series of the net buy of ATM and OTM puts are consistent with their model-implied counterparts.