We show that over a long study period (1963-2010), the existence and trading efficacy of the well-known low-volatility stock anomaly are more limited than widely believed. For example, we find that the anomalous returns are not found within equal weighted long-short (low minus high risk)...

We examine the option-implied volatility of the three most liquid ETFs (Diamonds, Spiders, and Cubes) and their respective tracking indices (Dow 30, S&P 500, and NASDAQ 100). We find that volatility smiles for ETF options are more pronounced than for index options, primarily because...

We study the relationship between stock returns and the implied volatility smile slope of call and put options. Stocks with a steeper put slope earn lower future returns, while stocks with a steeper call slope earn higher future returns. Using dispersion of opinion as a proxy for belief...

An option contract is a zero-sum game, so two identical risk-averse investors would never take opposite sides of it. While they will agree on the correct option price, they would never trade with each other. Heterogeneity is essential for options trading to exist, and aggregating diverse...