Cheap Options Are Expensive

Alexei Boulatov; Assaf Eisdorfer; Amit Goyal; Alexei Zhdanov

doi:10.1093/rapstu/raag001

Cheap Options Are Expensive

Alexei Boulatov¹; Assaf Eisdorfer²; Amit Goyal³; Alexei Zhdanov⁴

¹ HSE University , Russia · ² University of Connecticut · ³ Swiss Finance Institute at the University of Lausanne , · ⁴ Penn State University

The Review of Asset Pricing Studies 2026

Abstract We show that demand pressure from retail investors makes options on low-price stocks relatively expensive—delta-hedged options on low-price stocks underperform those on high-price stocks by 0.63% per week for calls and 0.36% for puts. Natural experiments corroborate this finding: options become more expensive following stock splits, options on mini indices are more expensive than those on main indices, and mini contract options are more expensive than standard options. We attribute our findings to retail investors’ preference for skewness and divergence of opinion. Limits to arbitrage and strategic quote setting by market makers contribute to, but do not fully explain, this effect. (JEL G13, G14)

DOI: 10.1093/rapstu/raag001
Volume: 16 (2)
Pages: 283-326
Language: en
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