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turkeyneck

Registered: Dec 2007
Posts: 1869

10-29-12 05:26 AM

Does it mean all options will decrease by 1 day or 2 days worth of theta if the market reopens on Tue or Wed respectively?

How would that work out for the weeklys if the market stays closed for the entire week from an extraordinary event like this? Does it mean they'll all expire worthless?

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atticus

Registered: Mar 2007
Posts: 12633

10-29-12 05:28 AM

Yeah, if they're OTM as of the last trading day. We all knew a major storm was going to impact NYC. Nobody "sets" decay. Vols will actually rise as theta will not reflect 5-days decay (if opening Wed) as they took a lot of vol out before the close on Friday.

< Long $8k thetas.

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cdcaveman

Registered: Aug 2011
Posts: 3516

10-29-12 05:39 AM

Quote from atticus:

Yeah, if they're OTM as of the last trading day. We all knew a major storm was going to impact NYC. Nobody "sets" decay. Vols will actually rise as theta will not reflect 5-days decay (if opening Wed) as they took a lot of vol out before the close on Friday.

< Long $8k thetas.

Confused. +theta is always -vega.... im confused how vol will rise with less days of trading....less days of trading equals a subtraction of time from premium... less time less probability of options going into the money less.. How do vols increase?

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atticus

Registered: Mar 2007
Posts: 12633

10-29-12 05:43 AM

Quote from cdcaveman:

Confused. +theta is always -vega.... im confused how vol will rise with less days of trading....less days of trading equals a subtraction of time from premium... less time less probability of options going into the money less.. How do vols increase?

No it's not. Long calendars are long vega (atm, >20delta), but that's not what I am referring to. I am suggesting that weekly vols will actually rise from Friday's close to the opening print on x (day we open op exchanges), but theta will still exceed gains from the slight vol-boost. Analogous to a rally in from month vol into earnings even if the straddle drops in prem (theta > vega).

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cdcaveman

Registered: Aug 2011
Posts: 3516

10-29-12 05:52 AM

Quote from atticus:

No it's not. Long calendars are long vega, but that's not what the point. I am suggesting that weekly vols will actually rise from Friday's close to the opening print on x (day we open op exchanges), but theta will still exceed gains from the slight vol-boost. Analogous to a rally in from month vol into earnings even if the straddle drops in prem (theta > vega).

I get it... ..... But why do you think or why is vol going to increase?

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atticus

Registered: Mar 2007
Posts: 12633

10-29-12 06:03 AM

Quote from cdcaveman:

I get it... ..... But why do you think or why is vol going to increase?

lol because the mkt rarely takes out full modeled decay on non-trading days; plus the mkt anticipated the impact on volume and vola from the storm on Friday.

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