Testing Excess Returns from Passive Options Investment Strategies

Serie Documentos de Trabajo Nro. 605

13 Pages Posted: 18 Jul 2017

Date Written: 2016

Abstract

When analyzing options returns, most papers tend to focus on the expected and realized return from strategies where the investors are long on those financial instruments. We conduct a test searching for excess returns on passive options investment strategies resorting to a four factor model, evaluating the case of an investor who launches options and evaluates returns to the light of capital invested in the form of margins requirement. The main point of our research work is to continue the line of research where we evaluate options returns using the metrics with respect to margin requirements.

We find that there are excess returns not explained by the four factor model, which in turn may indicate the strategy generates extra returns, or that the investor going short on options provides insurance to events not captured by the traditional models.

Keywords: four factor model, asset pricing, realized returns, option pricing

JEL Classification: C1, C3, N2, G11

Suggested Citation

Dapena, José Pablo and Siri, Julián Ricardo, Testing Excess Returns from Passive Options Investment Strategies (2016). Serie Documentos de Trabajo Nro. 605. Available at SSRN: https://ssrn.com/abstract=2998787 or http://dx.doi.org/10.2139/ssrn.2998787

José Pablo Dapena (Contact Author)

University of CEMA ( email )

1054 Buenos Aires
Argentina

Julián Ricardo Siri

University of CEMA ( email )

1054 Buenos Aires
Argentina

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