On weekends, options lose 1 day or 3 days of time decay?

Discussion in 'Options' started by crgarcia, Oct 29, 2007.

  1. They count calendar days or trading days?
  2. The weekend starts getting priced into the option on Friday through an IV drop. Changing the IV of an option is the same as changing the time value.
  3. Great!, didn't know this.

    So you still can profit over weekends if you expect a moderate move without getting burned by time decay?
  4. wenzi


    Time does not stop on the weekend. It is three days, but the IV starts dropping on Friday to compensate for that.
  5. Used to be in the old days the specialist/dpm/llm whom ever was running the book would take out the decay as he saw fit on a friday or a monday and a lot had to do with his firms position.

    These days with most stuff being multi listed and even the few single listed index products there is a lot of competition from all kinds of places in each book. The big mm/specialist firms all use fairly similar programs which decay the options over the period of the day on friday's. Watch it on a day where the markets closed on a Friday or a Monday its a little more pronounced.

    If you're thinking about selling the weekend its not really that viable a strategy most of the time. Its 3 days decay but its not easy to capture it or worth trying many times.
  6. Yes, if you're thinking of taking a long position over the weekend, you'll want to wait till close on friday. For instance, if you were expecting a big move monday. It is unlikely that time decay will hurt you much on a position entered at the close friday.
  7. Good point cache.. I was looking at it from the other side and assumed the original poster was talking about selling the weekend.
  8. Prevail

    Prevail Guest

    I sometimes also see a big drop in the prices when thursday's settlements hit. my view is the weekend theta can start a little early.
  9. Like stated before, IV adjusts on Friday. Fama/French did empirical research that proved vol was driven by trading more than news...this is why models use 252 trading days instead of 360/365.