Illiquidity is well-known to be a significant determinant of stock and bond returns. We are the first to estimate illiquidity premia in equity option markets using effective spreads for a large cross-section of firms. The risk-adjusted return spread for illiquid over liquid options is 23 bps per day for calls. The spread for puts is somewhat lower but still significant at 13 bps per day. The spread is generally largest for out-of-the money options.