Download or read book Characteristics and Expected Returns in Individual Equity Options written by and published by . This book was released on 2014 with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study excess returns from selling individual equity options that are leverage-adjusted and delta-hedged. I find that options with longer maturities have higher risk yet lower average returns. I identify three new factors--level, slope, and value--in option returns, which together explain the cross-section of expected returns on option portfolios formed on moneyness, maturity, and value. This three-factor model also helps explain expected returns on option portfolios formed on twelve other characteristics. While the level premium appears to compensate investors for market-wide volatility and jump shocks, market frictions help us understand the slope and value premiums.