In this episode, we explore why the income we earn isn't the same as the return. We show how option income strategies work, what their historical returns have been, what drives the return, and what reasonable return expectations are.
We show why option income strategies have a positive expected return while sports betting has a negative expected return.
Finally, we look at other areas where we confuse income with the total return.
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Show Notes
Episode slide deck
Variance Risk Premia by Peter Carr and Liuren Wu—NYU
Cross section of option returns and idiosyncratic stock volatility by Jie Cao and Bing Han—The Journal of Financial Economics
The Price of Correlation Risk: Evidence from Equity Options by Joost Driessen, Pascal J. Maenhout, Grigory Vilkov—SSRN
Cross-section of option returns and volatility by Amit Goyal and Alessio Saretto—The Journal of Financial Economics
The Art of Put Selling: A 10 Year Study by John Marshall, Krag Gregory, Katherine Fogertey—Goldman Sachs
Low Stress Bets
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