I wonder if anyone willing to share their insight/prop methods on vola calculations over a weekend I am interested in one particular time frame for 8 days over 5 days ( for weeklies) sample TIA

what is it that you want to know? the markets are the markets, regardless of how you want to calc IV. if something is 2.00-2.20, does it matter whether you are calculating it on fri, sat, sun, or monday even if it's only noon on the friday of a 3 day weekend?

If the markets are at 2.10 mid with 40 vols on Friday close, what is the guesstimate/model for Monday open? Is it : Still 2.10 (hence, the vols print= 50) OR Vola stays at 40 (hence, the mid at 1.80)??

There is no decay or volatility adjustment for the weekend. The prices and vol are already priced in at the close Friday for the next weekâs open. So if it closed at 2.10 Friday then the market makers expect they will open it at 2.10 the next week, but the vol isnât really 40 on Friday, it is 50 in your example because they are already running Mondayâs date for their models. That part is pretty simple, but you should be more concerned about gamma with a week to go until expiration of the option, not so much about vol.

Thanks optÂ¡Kunfortunately this part is not pretty simple to me. I am looking for mechanics of pricing in process. If end of Friday = Monday open, then when did the smoothing started?? Friday morning? Day before? BTW Â¡V let the other side of my trade be concerned about gamma risk because I always long options (unless it's a calendar trade)

From my experience the exact specifics of when the market makers start to price in the weekend varies on the underlying, but basically you can think of running time ahead in a smoothed fashion. This will obviously vary if there is news expected at some point, and you can always argue whether the market makers are changing implied vol or running time ahead (it is two sides of the same coin). If you have priced in Monday morning, or Sunday night for futures options, by the close Friday then work backwards, so by Wednesdayâs close they may start slowly running time ahead. I have watched markets where the whole 7 days are very smoothly run through during the trading week, and others where it is done mostly Thursday and Friday.

My observations confirm the same. However â I thought that maybe some MM will be willing to share exact techniques. If the smoothing begins on Friday, then they need to adjust ones an hour as if three hours passed. Thatâs will make Monday open = Friday close

in my experience, vol tends to move in chunks. this is especially true for 3-day weekend. some people will move their simulation dates up, other leave it an lower vol. it really doesn't matter. usually a good chunk of the weekend will come out before the close on friday. some times on monday, prices are higher, sometimes lower. generally i'd say 75% of the weekend will be decayed by friday's close, unless there is expected news or some sort of turmoil.

From my understanding... Going from Friday to Tuesday (assuming a holiday weekend) should be almost no difference than going from Thursday to Friday. Look at the Theta (time decay) besides the IV. The IV can easily rise because of the uncertainty of a 3 day weekend. Get the spreadsheet optionsedge 2.0 to play with. Days till expiration can be trading days not just calendar days.

There should be some decay over the weekend. News can happen, etc. So the transition from Friday Close to Monday Open should not be continuous in PRICE. Would you rather buy an option on Friday at 4pm or Monday at 9:30am if the price were the same? The IMPLIED VOLATILITY that is displayed to the user may or may not change, depending on the calendar algorithm in the pricing engine. If the algorithm thinks ZERO time has expired, and the option opens cheaper (which it will), then Implied Vol will appear to fall. kps