Journal of Financial Economics Vol. 94 No. 2 2009
Cross-section of option returns and volatility☆
Abstract
We study the cross-section of stock option returns by sorting stocks on the difference between historical realized volatility and at-the-money implied volatility. We find that a zero-cost trading strategy that is long (short) in the portfolio with a large positive (negative) difference between these two volatility measures produces an economically and statistically significant average monthly return. The results are robust to different market conditions, to stock risks-characteristics, to various industry groupings, to option liquidity characteristics, and are not explained by usual risk factor models.
- DOI
- 10.1016/j.jfineco.2009.01.001
- Volume
- 94
- Issue
- 2
- Pages
- 310-326
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex