If I were to open a position just before the close on Friday, is there a premium decay associated with the weekend or is that taken out of the equation?
accelerated time decay starts at friday but there is some additional time decay since there is overnight risk over the weekend.
Both theta and IV get decidedly "lumpy" between ~3:30pm and 9:50am, regardless of weekend or not. Does the weekend *increase* this lumpiness? In my *opinion*, yes, but only from observation -- I can't quote you a study -- which would be pretty hard, as it's news events and threat NON-events that all get balanced.
Did that in '90-'91. Every Monday - poppin' vol back up. Very un-smooth. Me likey smooth. Built trading day model which treated weekends as 1 day. Much smoother. Peace!
! Heh! Come to think of it, this reminds me of a thread from not too long ago -- maybe since you arrived here at ET, Wheezooo? The general question was how long a year was, for Black Scholes Merton methods, and I gave my vague recollection as 365 if you're an academic, and 252 if you're a practitioner, and that when I built my own stuff, 252 seemed to work with much less questionable outcomes than 365... (If I recall all of this correctly...)
I missed that one, but I think it is either 365, 360, or 252. Hopefully one day someone figures out this global rotation spinny thing, and we can get a concrete answer on this.
Thanks for all your input guys. So I guess it's better to just wait until the open of the next trading session. Be that as it may, if overnight risk is so paramount, why don't they allow extended trading like the futures?
https://www.moneyshow.com/articles/optionsidea-26831/ " Here is the short answer: weekend Theta is essentially decayed out of a position by Friday afternoon at 4:00 pm. ... So what do market makers do? It’s pretty simple. We begin to decay the entire weekend as early as we possibly can. ... On Thursday at about mid-day, I would turn off all of my quotes. I would then go into my options quoting software and begin moving my software’s theoretical day forward to Friday "