We propose a novel factor model for option returns. Option exposures are estimated nonparametrically and factor risk premia can vary nonlinearly with states. The model is estimated using regressions, with minimal assumptions on factor and option return dynamics. Using index options, we...

We study energy futures option returns for crude oil, natural gas, heating oil, and gasoline. Average call and put returns are negative at short maturities, more so for OTM options, and increase with maturity. Put returns are less negative than call returns, but this is not the case for...