Abstract: We propose a measure of dispersion in options traders’ expectations about future stock returns by using dispersion in trading volume across strike prices. We find that an increased dispersion in expectations forecasts lower subsequent excess market returns at both short and long horizons. Trading strategies based on the dispersion measure reveal significant utility gains for a mean-variance investor as compared to a buy-hold strategy. Further, the dispersion measure exhibits additional predictive power when combined with the variance risk premium, thus showing that the two variables capture different aspects of the variation in returns. We also find that the information embedded in the dispersion in expectations measure is neither subsumed by well-established predictors of market returns, nor by other option-implied measures that proxy for variance and jump risk, or reflect hedging demand. Our results can be interpreted in light of models explaining the effect of disagreement or ambiguity on asset returns.