We analyze the relation between expected option returns and the volatility of the underlying securities. The expected return from holding a call (put) option is a decreasing (increasing) function of the volatility of the underlying. These predictions are strongly supported by the data. In the...

This chapter surveys the methods available for extracting information from option prices that can be used in forecasting. We consider option-implied volatilities, skewness, kurtosis, and densities. More generally, we discuss how any forecasting object that is a twice differentiable function of...

Options on crude oil futures are the most actively traded commodity options. We develop a class of computationally efficient discrete-time jump models that allow for closed-form option valuation, and we use crude oil futures and options data to investigate the economic importance of jumps and...

We study energy futures option returns for crude oil, natural gas, heating oil, and gasoline. Average call and put returns are negative at short maturities, more so for OTM options, and increase with maturity. Put returns are less negative than call returns, but this is not the case for...