This paper constructs a call pressure index (CP) from China's SSE 50 ETF option market and finds a robust U-shaped nonlinear predictability for directional option returns as measured by log returns. The effect reflects that extreme call pressures—whether unusually low (reversal) or high (momentum)—contain information, while moderate levels are dominated by noise trading. Robustness checks using delta-hedged returns confirm that predictability stems primarily from directional exposure rather than volatility dynamics. The predictability is stronger in high-volatility and down-market states and survives controlling for implied skewness, variance risk premium, and other common predictors. A simple timing strategy based on rolling-window forecasts achieves a Sharpe ratio of 0.97, which further increases to 2.43 after applying a prediction threshold. A parsimonious volume-based indicator captures unique predictive information beyond complex proxies, offering a feasible path for emerging markets lacking proprietary order flow data.

In this paper, we investigate alternative one-factor and two-factor continuous-time models with both affine and non-affine variance dynamics for the Chinese options market. Through extensive empirical analysis of the option panel fit and diagnostics, we find that it is necessary to include both the non-affine feature and the multi-factor structure. For performance evaluation, we examine various measures from both aggregate and dynamic perspectives. Our results are statistically significant.

This paper will partially solve the puzzle of implied volatility spreads from the perspective of short-selling (option-implied borrowing rate). Specifically, we use Chinese SSE 50 ETF options data to examine the relationship between the option-implied volatility spreads and option-implied borrow rate. Using nonparametric regression models, we find that there is a clear negative correlation between the implied volatility spreads and the implied borrowing rate. Furthermore, our results show that there is a significant nonlinearity between these two variables. Finally, it is interesting to note that the option volatility spreads are zero when the option prices include the short selling cost.