We show that options written on stocks with low prices are over-priced. This effect is robust to a variety of tests, controlling for common stock- and option- risk characteristics, and to reasonable transaction costs. Natural experiments corroborate this finding; options tend to become...

Return anomalies are most pronounced among distressed stocks. We attribute this finding to the role of misvaluation and investors' inability to value distressed stocks correctly. We treat distressed stocks as options and construct a valuation model that explicitly takes into account the value of...

Most firms face some form of competition in product markets. The degree of competition a firm faces feeds back into its cash flows and affects the values of the securities it issues. Through its effects on stock prices, product market competition affects the prices of options on equity and...