Theta and long weekend question

Discussion in 'Options' started by a529612, Sep 1, 2007.

  1. If the theta of an option is 0.05, does it mean it will open lower by 0.15 on Tue assuming the stock trades flat? Or this has been priced in already before close on Fri? Thanks!
  2. hopback


    approximately, also assuming no change in vol.

    but your thetas will increase each day as well
  3. Actually on a friday infront of a 3 day weekend you'd get 4 days of decay. Friday, Saturday, Sunday and Monday... The issue is that the whole market knows this and they're not interested in pricing everything for Friday's date all through the day and what usually happens is the market starts running their pricing a day then 2 days ahead through the day on Friday.

    Some of the more sophisticated firms have a step program which takes the weekend or the portion of the weekend they deem correct out during the day friday.

    The reason why they price a day or two forward is that not only do the prices of the options decay each day, all of the variables do. If you're a large firm and you're making markets on a Friday you'll want to surely know how much your net delta, gamma and vega are going to decay over the weekend so when you start back up there are no surprises. Especially the weekend before expiration when the decay cycle is close to its greatest point.