Making Money is Easy

While it does take advantage of theta, theta is not the primary component by which it gains in value. In fact, its more of a "bonus"

 

I'm not sure if you know this or not and I hate to bring bad news, but most of the weekend decay in options is gone before Friday's open. There is no decay over the weekend for the most part. I hate to take away bonuses.

 

Here's trade which makes more than 6% at expiration on this Friday:

Ticker=VRX LastSpot=28.84 tmLastTrade=20160606-195959 Expiry=2016-06-10
PL=6.12% based on CostBasis (ie. MarginReq) CostBasis=4.90(16.99%)
Pos1/1 Put-Short Strike=23.00 Premium=Credit=0.30 MarginReq=4.90(16.99% of spot) S2K=-5.84(-20.25%)

Be careful: it releases today (Tue) its quarterly ER...
The above trade is safe as long as the underlying spot doesn't fall more than 20.25% till Friday's close.

Quotes:

 

You do know they report tomorrow right? Right?

 

Making money is never easy (or accomplishing anything) -- no matter how simple and easy it may look in retrospect hindsight from the outside.

But back to your question or inquiry, ...milk your system or skill for all its got.
Talk is cheap. and time is money.

 

That seems counterintuitive (the weekend theta priced into Fri AM), do you know why that is and is it really a recognized phenomen? You can't realize the potential weekend discontinuous jumps until the weekend is over, so one would think you'd need to pay for the privilege of that on Fri.

 

When I was on the floor of the CBOE (long time ago) we started lowering our vols at 10am on Friday and by noon the full decay was priced in. But some empirical research came out a few years later showing the so called "weekend jump" was total bs and was based on myth and not real data. So traders started lowering implieds going into thursday's close. The evidence showed that while there are "macro" jumps on weekends i.e. currency and interest rate surprises, stock surprises were actually most likely to come on monday and tuesday nights. Rarely was there meaningful news over the weekend. Now that is not to say there is NEVER meaningful news, just that the amount of money mm's were giving up by keeping vols bid was greater then what they were making by the so-called weekend jumps. In the mid to late 90's mm's were getting deluged with long inventory going into weekends that never materialized into meaningful gains. So the market adjusted.

 

Leverage your full account. 2% a week will compound quickly.

 

While I can't specifically speak for theta decay over the weekend. What I can say, as it relates to my strategy, is that when I first enter the position on Friday I am generally down about -$500 instantly. This is due to slippage on the spread and commissions.

By mid day Monday the position is normally in the green by about +$300, so a change of nearly +$800. Whether that is due to theta decay, or something else, it works for me. That is why I open the position on Friday.

 

Thanks for that, learned something today! Another interesting article here (http://sixfigureinvesting.com/2014/10/option-weekend-decay-and-volatility-annualizing/) with some data supporting the same idea. Still doesn't make sense, seems if you're buying volatility you get at least a little something extra free if you do it on Fri afternoon versus Monday afternoon, but the data seems to support it.