Asymmetric Option Returns in China

ABSTRACT This paper documents two return asymmetries in China's options market: call (put) returns are positive (negative) overnight but negative (positive) intraday. We provide a demand‐pressure‐based explanation for this phenomenon, identifying retail investors' gambling motives as the primary catalyst, which are particularly salient following negative realizations of underlying returns. Additionally, insurance‐driven demand accounts for the negative overnight put returns, while attention‐driven demand contributes to the night‐day asymmetry in call returns. Despite institutional investors exploiting these mispricings, the asymmetries persist over time, leaving retail investors to bear losses as counterparties.