TY - JOUR T1 - Option Investing from a Risk-Return Perspective JF - The Journal of Portfolio Management SP - 109 LP - 121 DO - 10.3905/jpm.1999.319700 VL - 25 IS - 5 AU - Richard J.. Rendleman, Jr Y1 - 1999/08/31 UR - https://pm-research.com/content/25/5/109.abstract N2 - 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. ER -