We document empirically that the returns from shorting out-of-the-money S&P 500 put options are concentrated in the few days preceding their expiration. Back-month options generate almost no returns, and front-month options do so only towards the end of the option cycle. The concentration of the...

This paper documents that options held from one expiration date to the next achieve significantly lower returns when there are four versus five weeks between expiration dates. The average return differential ranges from 12 basis points per week for delta-hedged put portfolios to 89 basis points...

We propose a measure for the convexity of an option-implied volatility curve, IV convexity, as a forward-looking measure of excess tail-risk contribution to the perceived variance of underlying equity returns. Using equity options data for individual U.S.-listed stocks during 2000-2013, we find...

We develop a general model to price VIX futures contracts. The model is adapted to test both the constant elasticity of variance (CEV) and the Cox–Ingersoll–Ross formulations, with and without jumps. Empirical tests on VIX futures prices provide out-of-sample estimates within 2% of the...

The European put-call parity condition is used to estimate the early exercise premium for American currency options traded on the Philadelphia Stock Exchange. Using a sample of 331 pairs of call and put options with the same exercise price and time to expiration, evidence is provided for early...

We propose a mean-reverting electricity spot price model of arithmetic jump-diffusion type yielding positive prices. Based on this approach, we derive the corresponding forward and futures price representations. We further discuss different choices for the stochastic mean level process and...

Average returns for S&P 500 index options are negative and large: -0.7% per day. Strikingly, when we decompose these delta-hedged option returns into intraday (open-to-close) and overnight (close-to-open) components, we find that average overnight returns are -1%, but intraday returns are...

We document a positive and persistent relation between retail investor attention, as measured by Google search volume, and future realized stock return volatility. The relation implies a profitable option trading strategy of purchasing high attention delta-neutral straddles and selling low...

We conduct an empirical analysis of the term structure in the volatility risk premium in the fixed income market by constructing long-short combinations of two at-the-money straddles for the four major swaption markets (USD, JPY, EUR and GBP). Our findings are consistent with a concave,...

The slope of the implied volatility term structure is positively related to future option returns. We rank firms based on the slope of the volatility term structure and analyze the returns for straddle portfolios. Straddle portfolios with high slopes of the volatility term structure outperform...