Using local linear regressions based on Russell index reconstitution, we examine how option price efficiency is affected by stock market indexing. We find that put-call parity deviation, a proxy for options price efficiency, is significantly smaller if a stock is at the top of the Russell 2000 index, compared with a similar-sized stock at the bottom of the Russell 1000 index. The stocks at the top of the Russell 2000 index also have higher options trading volume and smaller option bid-ask spreads. Our results collectively suggest that the stock market indexing effect improves the option price efficiency through higher options market liquidity.