The 'smart money' signal that investors used to follow in the stock market has been completely broken by the rise of free trading apps.
April 13, 2026
Original Paper
Options Volume as Noise: Evidence from Three Decades of Earnings Announcements
SSRN · 6448100
The Takeaway
For decades, heavy trading in stock options was a signal of informed betting, but that flipped in 2019. Now, high volume is often just 'noise' from retail speculators, meaning the data investors used to rely on for predictions has become a misleading distraction.
From the abstract
<div> We examine whether pre-announcement options activity predicts earnings surprises and returns <span>using 69,094 firm-quarters from 1996–2024. Contrary to the “smart money” hypothesis, </span><span>high option-to-stock volume (O/S) predicts lower returns: a quintile hedge portfolio earns </span><span>−39 basis points in the announcement window (t = −3.79) and −118 basis points in post-earnings </span><span>drift (t = −4.60). These robust patterns suggest options volume reflects hedging </sp