The Timing of Option Returns

58 Pages Posted: 3 Feb 2017 Last revised: 21 Oct 2018

See all articles by Adriano Tosi

Adriano Tosi

Wellington Management

Alexandre Ziegler

University of Zurich - Department of Banking and Finance

Date Written: March 16, 2017


We document empirically that the returns from shorting out-of-the-money S&P 500 put options are concentrated in the few days preceding their expiration. Back-month options generate almost no returns, and front-month options do so only towards the end of the option cycle. The concentration of the option premium at the end of the cycle reflects changes in options’ risk characteristics. Specifically, options’ convexity risk increases sharply close to maturity, making them more sensitive to jumps in the underlying price. By contrast, volatility risk plays a smaller role close to maturity. Our results imply that speculators wishing to harvest the put option premium should short front-month options only during the last days of the cycle, while investors wishing to protect against downside risk should use back-month options to reduce hedging costs.

Keywords: Option Returns, Out-Of-The-Money Put Options, Market Timing

JEL Classification: G11, G12, G13, G14

Suggested Citation

Tosi, Adriano and Ziegler, Alexandre, The Timing of Option Returns (March 16, 2017). Available at SSRN: or

Adriano Tosi

Wellington Management ( email )

United States

Alexandre Ziegler (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032

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