The relationship between Expected Stock Returns and Option-Implied Rate of Return

It is known that  for two stock option positions which appear identical, the potential stock option return may be useful for determining which position has the highest relative potential return. The following research from scientific research publishing pointed a new view:

This paper examines the predictability of implied required rate of return (ROI) of individual stock in the cross-section of stock returns. The required rate of return of each stock is implied using its corresponding stock options and used in estimating the fundamental value of stock. The study finds that stocks with low price to fundamental value have higher future returns. The inferred ROIOI.

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(artical resource: scientific researchpublishing)