PT - JOURNAL ARTICLE AU - Richard J.. Rendleman, Jr TI - Option Investing from a Risk-Return Perspective AID - 10.3905/jpm.1999.319700 DP - 1999 Aug 31 TA - The Journal of Portfolio Management PG - 109--121 VI - 25 IP - 5 4099 - https://pm-research.com/content/25/5/109.short 4100 - https://pm-research.com/content/25/5/109.full AB - Here the author derives the binomial option model via the CAPM. The derivation makes it clear that the expected returns from options should be consistent with their risks. Thus, call options, with very positive betas, should have very high expected returns, and put options, with very negative betas, should have expected returns significantly lower than the risk-free interest rate. Using both the CAPM and standard binomial pricing frameworks, the author illustrates the evolution of expected returns for various option-related investment strategies, and provides an analysis of expected and most likely returns for call and put options.