0.35% average return premium recorded during equity index options expiration

The 0.35% average return premium recorded during equity index options expiration weeks appears on the ledger as a distinct thermal gradient. In the winter of 1824, while observing the expansion of water vapor in a copper cylinder at 100 degrees centigrade, the pressure gauge exhibited a series of rapid, jagged oscillations before settling at the mean. There is a desire to draw a straight line through these points to satisfy the eye. This impulse must be resisted. The jaggedness is the friction of the machine.

In a steam engine, the efficiency ratio is determined by the temperature difference between the boiler and the condenser. If the boiler is at 400 Kelvin and the condenser at 300 Kelvin, the maximum theoretical work is 25%. The 0.35% premium in the market represents the heat released as the system moves toward equilibrium during the rebalancing of gamma. This is the mechanical work extracted from the flow of liquidity. To smooth the data - to treat the 0.35% as a constant, linear force - is to assume the engine operates without a cycle.

The fluctuations within the opex week are the noise of the valves opening and closing. If the return curve is smoothed, the investigator loses the ability to see where the heat escapes. Irreversibility is found in the spikes, not the averages. When the market maker hedges, the movement is not a fluid transition but a sequence of discrete, forceful expansions. These expansions create the 0.35% gradient.

The cold reservoir in this process is the weekend following expiration, where the excess volatility is dumped. If the condenser is too small - if the liquidity at the close of Friday is insufficient - the system overheats. The return premium vanishes or turns negative as the gradient collapses. The data stays rough because the process is discontinuous. The jagged line on the chart is the true record of the piston’s stroke. I will leave the fluctuations in the final draft of the diagram. The roughness is the evidence of the work performed.