One session options: Playing the announcement lottery?

One session options (OSO) are unique financial instruments that perfectly fit the criteria for a lottery-type asset; a low-price (average premium of 1 b.p.) coupled with a relatively small probability of a large payoff. Using intra-day data for over 12.8 million intra-day option contracts on the 3-Year Treasury Bond, we examine trading behaviour in the OSO market over the period 2002-2019. We find that trading volume is higher on days with a major macroeconomic announcement, and concentrated earlier in the trading session, prior to the data release. Trading volume tends to be higher when there is a difference of opinion surrounding the announcement outcome or when the level of economic policy uncertainty is higher. Trading in OSO has some predictive value for the surprise component of the macroeconomic announcement, but this does not translate into economic profits. While there is a positive option payoff on average, the average net profit is negative once premiums are accounted for. Our results are robust to different measures of uncertainty, market activity, and model form. It seems likely that OSO trading behaviour is best explained by ‘differences of opinion’.