Preliminary. Comments are welcome!

During the last decade, markets for covered warrants (bank-issued options) have flour-ished in Europe and Asia. In these markets, investors often face a choice between many instruments that differ only slightly from each other. Based on retail trades in call options on the German DAX index, this paper documents substantial price dispersion across secu-rities that should be close substitutes from the investor’s perspective. Moreover, investors generally fail to identify attractive options. The results suggest that the observed product proliferation imposes a substantial search cost on investors even though the products are homogenous and their pricing is well understood. The search cost is estimated to average 1 % of the amount invested, the same order of magnitude as the average spread