This paper explores historical return and risk properties of equity-hedged options across the S&P 500 option surface. We evaluate returns by estimating alpha to the S&P 500 index, and we quantify risk using three metrics: return volatility, losses under stress tests, and conditional value at risk. We show that analyzing option risk-adjusted alphas using different risk metrics leads to significantly different conclusions. We find that the most compensated options to sell on the S&P 500 surface per unit of stress-test loss are front-month options with strikes near-the-money and moderately below the index level. We apply these results to evaluate return expectations for short volatility strategies, potential added return from option selection, and implications for variance swaps.

Keywords: Options, Volatility Risk Premium, Variance Risk Premium, Covered Call, Covered Calls, Call Overwriting, Overwriting, BuyWrite, Buy-Write, PutWrite, Put-Write, Variance Swap, Variance Swaps, Option Selection, Option Portfolio Construction, Option Selling, Volatility Selling, Short Volatility

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