Traditional methods of asset allocation (such as mean-variance optimization) are not adequate for option portfolios because the distribution of returns is non-normal and the short sample of option returns available makes it difficult to estimate their distribution. We propose a method to optimize a portfolio of European options, held to maturity, with a myopic objective function that overcomes these limitations. In an out-of-sample exercise incorporating realistic transaction costs, the portfolio strategy delivers a Sharpe ratio of 0:82 with positive skewness. This performance is mostly obtained by exploiting mispricing between options and not by loading on jump or volatility risk premia. COPYRIGHT 2017, MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF Washington, SEATTLE, WA.