Retail Clientele and Option Returns

57 Pages Posted: 28 Mar 2010 Last revised: 22 Apr 2013

Date Written: April 15, 2013


Does the retail clientele matter for option returns? By delta-hedging options and trading straddles, thus allowing a focus on volatility, this paper empirically shows that a higher retail trading proportion (RTP) is related to lower option returns. Long-short portfolios involving options on low and high RTP stocks generate significantly positive abnormal returns. The results suggest that retail investors speculate and pay a lottery premium on the expected future volatility, resulting in more expensive options with higher implied volatilities. This systematic deviation of option-implied volatility from realized volatility suggests retail clientele as a behavioral-based driving force of volatility risk premium.

Keywords: delta-hedged option returns, lottery premium, retail investors, speculation

JEL Classification: G10, G11, G14

Suggested Citation

Choy, Siu Kai, Retail Clientele and Option Returns (April 15, 2013). Available at SSRN: or

Siu Kai Choy (Contact Author)

King's College London ( email )

Bush House, Kings Business School
30 Aldwych
London, WC2B 4BG
United Kingdom

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