How ETF management fees affect option prices?

[gootcha]

I would like to ask how does the the option price of ETFs reflect their associated fees. As an "everyday tiny dividend"? Do option market makers engage in arbitration by hedging directly long/short the underlying asset or basket to capture these fees? I can imagine this could be relevant for ETFs with substantial fees holding just one or two future contracts, or in the case of an expensive ETFs where the direct hedge could be replicated by using a cheaper ETF.

 

[xandman]

I rather doubt that anybody engages in a "capture" strategy. More likely, the fees are priced into the skew/curve by quoting a higher volatility for selling puts which would give the mm a long delta position and exposure to the ETF's decay.

Please paste the link if you find any research.