Momentum is everywhere. It exists across all asset classes and across long timeframes. It may also exist with options. A recent paper finds that there is option momentum. First, they create delta zero straddles for options and then measure whether there is unique momentum embedded in the option markets. Other approaches are also tested with similar results. See "Option Momentum" in the Journal of Finance.
In fact, the momentum found in. option markets is stronger than what is seen in the underlying primal markets, but like stocks the one-month momentum will reverse over the following month. This option momentum exists even after accounting for other risk factors. This momentum does not have the same crash risk seen in stocks nor is there the strong reversal effect.
Overall, trading momentum through options can be profitable. The reason for these profits seems to be associated with market under-reaction. This study provides useful direction for traders to focus on centering momentum bets through trading options.
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