This study explores the relative information quality of in-the-money options compared to out-ofthe-money options. The extant literature regarding the informational efficiency of options tends to focus on only out-of-the-money options. Such tendency is based on the belief that out-of-themoney options are informationally superior to in-the-money options because they have relatively high liquidity. However, in-the-money options which are not deep-in-the-money also are sufficiently liquid and thus their inferiority should be verified empirically. Initiated by such a motivation, this study investigates the implied risk-neutral (RN) densities, implied risk aversionsand forecasting abilities of both in- and out-of-the-money options. Our findings support the conventional argument that in-the-money options are informationally inferior to out-of-the-money options, even after adjusting the risk-attitude of investors.
JEL Classification: G13, C12
Keywords: Volatility Spreads, In-the-money options, Out-of-the-money options, Adjusted Implied Volatility, S&P 500 index options, Risk-neutral skewness, Risk-neutral kurtosis
