Insider Trading with Options: Vacca (2026)

What this is. The paper’s core results, the datasets, and the identification strategy: enough to assess the scope of informed employee option trading and its channels, without reading all 21 pages. To replicate or extend, read the full source at the original.

TL;DR

Using daily securities registry data from Euroclear Finland (January 1995 to December 2014), Vacca (2026) documents that open-market purchases of own-company call options by employees predict positive subsequent stock returns on short horizons. The average market-adjusted weekly (five-day) return after an employee buys own-company options is 64 basis points, compared with approximately zero for purchases of options written on unrelated firms. Rank-and-file employees (below the level of manager or primary insider) account for the vast majority of own-company option purchases and their trades are the most informative, with a spread of 81 basis points versus unrelated firm purchases. Consistent with the argument of Black (1975) that informed investors prefer options for their embedded leverage, employees trade own-company options at five to eight times the rate they trade own-company stocks. The predictability concentrates before earnings announcements (approximately 150 basis points in the preceding week), extends to Nokia supply-chain partner stocks, and disappears entirely for former employees (a key falsification). The paper also uncovers a tipping channel: anonymous retail accounts that co-trade with employees earn similarly informed returns.

Core results

All returns are market-adjusted weekly (five-day) returns, reported multiplied by 100 so that 0.64 = 64 basis points. Standard errors are clustered at the stock-trade date level. Locators point to the source PDF.

#	Result	Locator	Magnitude
R1	Own-company call option purchases by employees predict positive weekly stock returns; purchases of options on unrelated firms do not	Table 2, Panel A, p. 7	Own-company avg = 0.64% (N=4,091); unrelated firm avg = 0.04% (N=3,250); difference = 0.59***, p=0.000
R2	Rank-and-file employees drive the predictability; their own-company trades are more informative than those of higher-ranked employees	Table 2, Panel B, p. 7; Fig. 2, p. 7	Rank-and-file own-company avg = 0.71% (N=3,413); unrelated = -0.10% (N=2,587); difference = 0.81***, p=0.000
R3	Own-company option purchases in the week before earnings announcements are more informative than purchases at other times	Fig. 4, p. 9; text p. 8	~150 bps (annualized ~120%) for buys in window [-5,-1] before announcement; near zero in windows far from announcement date; 281 of 332 pre-announcement trades are by rank-and-file employees
R4	Former employees’ option purchases do not predict positive returns (falsification of the information-advantage story)	Table 3, Panel A, p. 13	Former employees avg = -0.11% (N=2,275); current employees avg = 0.64% (N=4,091); difference = 0.76***, p=0.000
R5	Employees at Nokia customer and supplier firms earn informed returns by trading Nokia options (supply-chain channel)	Table 4, Panel A, p. 14	Nokia cluster employees avg = 0.58% (N=1,260); employees at other firms = 0.15% (N=1,767); difference = 0.43**, p=0.019
R6	Tipping identified: anonymous retail accounts that co-trade with employees are also informed	Table 5, Panels B-C, p. 15	Correlated (employee + tippee same day) avg = 0.83*** (N=3,187); tippee-only avg = 0.59*** (N=6,421); 783 anonymous informed accounts detected
R7	Employee own-company option activity is associated with contemporaneous increases in retail option buying	Table 6, col. (1)-(2), p. 17	Employee activity indicator coefficient = 10.88** (t=2.26) on daily retail buy count (stock + day FE); 10.01** (t=2.16) with option + day FE; positive also on log retail buy volume

Overall (paper’s conclusion). Between 3% and 9% of all retail demand in the Finnish market for single-name equity derivatives can be attributed to employees who likely have an information advantage; accounting for tipping raises this to over 15% of retail investors and 10% of open-market option purchases. Rank-and-file employees, not primary insiders or managers, are the primary source of informed retail option trading. The evidence points to a disclosure gap: most informed trading by employees goes undetected because rank-and-file employees face no mandatory disclosure requirements.

Theory / model

The paper has no formal theoretical model. It tests an information-advantage hypothesis using the following chain of predictions.

Theoretical foundation. Black (1975) argues that informed investors prefer options over stocks because of embedded leverage, which amplifies the return to private information for a given capital outlay. If rank-and-file employees hold private, price-relevant information about their employer, they should trade own-company options at a higher rate relative to stocks than uninformed investors do. The data confirm this: employees’ share of Finnish retail option demand is 5 to 8 times their share of retail stock demand (Fig. 7, p. 12).

Employee information. Green, Huang, Wen and Zhou (2019) show that crowdsourced employee reviews contain price-relevant information about firms, establishing that employees hold private knowledge that reaches beyond their immediate job function. Augustin, Brenner and Subrahmanyam (2019) document that informed options trading occurs before corporate events such as takeovers. This paper extends both lines of evidence by examining whether rank-and-file employees also trade on private information through option purchases, not only around extraordinary events but also as a recurring pattern around earnings announcements.

Identification hypotheses. The paper tests the information-advantage story against the following predictions:

1. Own-company option purchases by current employees should predict positive short-horizon stock returns; purchases on unrelated stocks should not (R1, R2).
2. Predictability should peak immediately before earnings announcements, when private information about upcoming news is most valuable (R3).
3. Information advantage derives from active employment; former employees should lose access to current firm-specific information, so their trades should not predict returns (R4, falsification).
4. Economic linkages can transmit inside information to supply-chain partners. Prior studies find that primary insiders trade derivatives of supply-chain partners to circumvent own-company restrictions (Deuskar, Khatri and Subrahmanyam 2025). Rank-and-file employees at Nokia’s customer and supplier firms should also exploit this channel (R5).
5. Employees may share private information with family members or acquaintances (tipping); correlated trading between employee and anonymous accounts should also be informed (R6).

Following Pan and Poteshman (2006), who link signed option demand to subsequent stock price movements, this paper uses short-horizon market-adjusted returns as the primary measure of option-trade informativeness.

Method

The paper uses three main empirical tools.

Return measurement. For each employee trade on stock $j$ at trade date $t$, the raw return over event window $\tau$ (expressed in trading days) is (p. 5):

$$\text{Return}_{j,t} = \frac{P_{j,t+\tau} - P_{j,t}}{P_{j,t}} \tag{1}$$

Market-adjusted returns subtract the contemporaneous market return, following the approach of Brown and Warner (1985). Standard errors are clustered at the stock-trade date level throughout; main results are robust to clustering by stock-month or two-way clustering by stock and trade date.

Tipping identification. The procedure (Appendix C) identifies pairs $(a, i)$ where $a$ is an anonymous retail account and $i$ is a current employee at firm $j$, such that $a$ buys call options on $j$ on the same day as $i$, with this co-occurrence repeated at least $k = 2$ times and constituting a significant fraction ($p = 0.1$) of $a$‘s total own-company option activity during $i$‘s employment tenure. Very active traders are excluded to avoid false positives.

Logit for option purchase decision. The determinants of own-company option purchasing are estimated by a logit model (Table 7, p. 18) with binary outcome equal to 1 if employee $i$ at firm $j$ purchases at least one own-company call option in month $m$. Regressors cover four domains: risk preferences (Female, recent large portfolio losses/gains), probability of detection (Primary insider status, which requires mandatory disclosure), habit (number of own-company option buys in the prior year), and financial market familiarity (prior stock and option trading activity, portfolio size). Standard errors are two-way clustered at the employee and firm-month level.

Empirical specifications

Main return comparisons (R1, R2, R4). For each employee-level option purchase, the paper computes the one-week market-adjusted return on the underlying stock. The primary comparison is between own-company and unrelated firm option purchases by the same pool of employees (Table 2), tested via a t-test with standard errors clustered at the stock-trade date level. The comparison is repeated separately for rank-and-file employees vs. higher-ranked employees (Fig. 2) and for current vs. former employees (Table 3). All returns multiplied by 100.

Earnings-window event study (R3). Employee option purchases are sorted by calendar distance to the next earnings announcement date. Average market-adjusted weekly returns following purchases in each window ([-21,-6], [-5,-1], [0], [1,5], [6,21] relative to the announcement) are compared between own-company purchases and purchases on other firms (Fig. 4, p. 9). Purchases in the five-day pre-announcement window are further stratified by the sign and magnitude of standardized unexpected earnings (SUE = realized EPS minus EPS from four quarters ago, scaled by the eight-quarter rolling standard deviation) to separate event-timing from earnings-surprise components (Fig. 5, p. 10).

Supply-chain analysis (R5). For the Nokia cluster, the sample is restricted to purchases of Nokia call options by non-Nokia employees at identified customer and supplier firms (111 employees, 1,260 purchases). Average weekly returns are compared against returns after Nokia option purchases by employees at non-Nokia cluster firms (Table 4, p. 14). Appendix Table F6 adds firm-year fixed effects to control for the amount of private information available at a given firm in a given year.

Retail response regression (R7). The contemporaneous link between employee activity and broader retail demand is estimated by (Eq. 1, p. 16):

$$Y_{o,t} = \alpha + \beta X_{o,t} + \gamma_s + \delta_t + \varepsilon_{o,t} \tag{2}$$

where $o$ indexes an option written on underlying stock $s$ on trading day $t$; $Y_{o,t}$ is the daily retail buy count (or log retail buy volume) excluding own-company employee trades; $X_{o,t}$ is the Employee activity indicator, equal to 1 if at least one own-company option purchase occurs on day $t$; $\gamma_s$ is an underlying stock fixed effect (or option fixed effect in column 2); and $\delta_t$ is a day fixed effect. Standard errors are two-way clustered at the underlying stock and month level (Table 6, N = 106,519 option-day observations).

Datasets used

Dataset	Role in paper	Wiki page
Euroclear Finland (securities registry)	Daily records of all Finnish securities holdings and changes, Jan 1995-Dec 2014; source of all option and stock trades; granular trade-type identifier separates open-market purchases from other transaction types	No page yet
Alexander Incentives (executive compensation data)	Information on hundreds of employee and executive stock option plans issued by Finnish firms; provides employment-relationship identification for over 40,000 individuals; used to classify each individual as primary insider, manager, or rank-and-file employee	No page yet

Sample: January 1995 to December 2014; 43 Finnish firms with employee option trading observed; 890 current employees making 4,091 own-company call option purchases. Nokia supply-chain sub-sample: 111 employees at 7 Nokia customer and supplier firms making 1,260 Nokia option purchases.

When to read the full paper

Use the original if you are: studying the legal and institutional setting for employee options trading in Finland (Section 1.1 and Appendix A); examining robustness by derivative type (listed options vs. warrants, Appendix D) or by employer firm (Appendix E); seeking the detail of the tipping-identification algorithm (Appendix C); extending the analysis to non-earnings information events (Section 2.3, Fig. 6); or reviewing the logit analysis of determinants of option purchasing (Table 7, Section 6).

Attribution and rights

Source: peer-reviewed, Journal of Corporate Finance 98 (2026) 102963. This distillation was extracted by an LLM on 2026-06-26 and is not human-verified or independently reproduced. The CC BY 4.0 licence permits mirroring; the verbatim PDF is not hosted in this batch.

Attribution (CC BY 4.0). Vacca, Matteo. “Insider Trading with Options: Evidence from Rank-and-File Employees.” Journal of Corporate Finance 98 (2026) 102963. DOI: 10.1016/j.jcorpfin.2026.102963. (C) 2026 The Author. Published by Elsevier B.V. Licensed under CC BY 4.0. This page is an adaptation by the Institute for Automated Research: core results extracted and re-expressed; changes were made.