Abstract
In this study, we find that a negative correlation exists between the expected return of call ELW and the lottery-likeness of underlying stocks. Call ELW, with lottery-like stocks as the underlying asset, underperforms by 52.6% every quarter relative to its counterpart. This phenomenon is not driven by any known risk factors. The overpricing of call ELW written on lottery-like stocks cannot be fully explained by the overpricing of underlying stocks. Much more violation of put-call parity exists when its underlying stock has more lottery characteristics.
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