Stock Option Returns: A Puzzle

56 Pages Posted: 19 Feb 2009

See all articles by Sophie Xiaoyan Ni

Sophie Xiaoyan Ni

Hong Kong Baptist University (HKBU)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2, 2008


Under very weak assumptions, the expected returns of European call options must be positive and increasing in the strike price. This paper investigates the returns to call options on individual stocks that do not have an ex-dividend day prior to expiration. The main findings are that over the 1996 to 2005 period (1) out-of-the-money calls have negative average returns, and (2) the average returns of high strike calls are lower than those of low strike calls. The puzzling returns are robust to a number of variations in methodology, and are not due to a 'peso' problem. Finally, preliminary evidence is presented that is consistent with investor skewness-seeking contributing to the puzzling call returns.

Keywords: Options, Idiosyncratic skewness, Derivatives, Behavioral study

JEL Classification: G12

Suggested Citation

Ni, Sophie Xiaoyan, Stock Option Returns: A Puzzle (August 2, 2008). Available at SSRN: or

Sophie Xiaoyan Ni (Contact Author)

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong


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