Options on Drugs: Industry Exposure and Option Anomalies
Type
working paper
Date Issued
2025
Author(s)
Abstract
On average, writing options on pharmaceutical stocks yields higher returns than writing options on stocks in any other industry. The exposure to options on pharmaceuticals helps explain the persistent returns of delta-hedged option strategies, such as sorting options based on corporate cash holdings. Pharmaceutical stocks exhibit high growth potential and strong lottery features related to drug trials and development, leading to increased option demand and risk to option writing. Furthermore, the biotechnology bubble of the early 2000s inhibits common option risk factors from fully capturing the returns of pharmaceutical options.
Keywords
Options
Option anomalies
Cross-section of option returns
Industry exposure
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OptionsOnDrugs.pdf
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Format
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