Year: 2001
Type: article
Abstract: ABSTRACT This paper examines expected option returns in the context of mainstream asset‐pricing theory. Under mild assumptions, expected call returns exceed those of the underlying security and increase with the strike price. Likewise, expected put returns are below the risk‐free rate and increase with the strike price. S&P index option returns consistently exhibit these characteristics. Under stronger assumptions, expected option returns vary linearly with option betas. However, zero‐beta, at‐the‐money straddle positions produce average losses of approximately three percent per week. This suggests that some additional factor, such as systematic stochastic volatility, is priced in option returns.
Source: The Journal of Finance
Authors: Joshua D. Coval, Tyler Shumway
Institutions: University of Michigan, The University of Texas at Austin
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W3124973140