Hi guys, just wanted to confirm - Opts theta applies to the weekend as well - correct ? If so, should that have any impact on the trade that we make - such as not buying an Opt on a Friday or something like that ? Thank you
Can vol still occur over the weekend even though the market is closed? Yes... ergo there is going to be a cost for being long gamma. You can't just get free convexity every weekend because there aren't normal trading hours. OP you need to look at the chain and price this stuff out for the specific instances you're interested in. Theta is just a figure calculated off all the other current inputs and is subject to change when any other variable does. Say we're pricing in a large news event on Tuesday. Friday closes and time passes. No movement over the whole weekend.. so of course the option is going to decrease in value since you lost some time to collect ambient movement, all else being equal, albeit it will probably be minimal. But the event is still looming so IV figures are going to climb until the event is at hand and change your greeks. These figures just try to give a snapshot of the underlying relationships always at work in an option.
Most simply Friday's close to Monday's open. If you end Friday long a hedged option and price moves at all you start Monday with some gamma gains, and vice-versa.