Abstract
Delta-hedged option and straddle returns of S&P500 Index and equity options computed using end-of-day (EOD) closing prices are always higher compared to those based on any other price of the day. The difference between these returns can easily reach more than 100 bps per day or week. Options end-users’ demand pressures contribute to deviation of EOD prices from fundamental values. Computing returns using first half of the day prices, which are less distorted by demand pressures, helps explain several anomalies in the literature and establish identical volatility pricing across equity and index options.
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