Does it mean all options will decrease by 1 day or 2 days worth of theta if the market reopens on Tue or Wed respectively? How would that work out for the weeklys if the market stays closed for the entire week from an extraordinary event like this? Does it mean they'll all expire worthless?
Yeah, if they're OTM as of the last trading day. We all knew a major storm was going to impact NYC. Nobody "sets" decay. Vols will actually rise as theta will not reflect 5-days decay (if opening Wed) as they took a lot of vol out before the close on Friday. < Long $8k thetas.
Confused. +theta is always -vega.... im confused how vol will rise with less days of trading....less days of trading equals a subtraction of time from premium... less time less probability of options going into the money less.. How do vols increase?
No it's not. Long calendars are long vega (atm, >20delta), but that's not what I am referring to. I am suggesting that weekly vols will actually rise from Friday's close to the opening print on x (day we open op exchanges), but theta will still exceed gains from the slight vol-boost. Analogous to a rally in from month vol into earnings even if the straddle drops in prem (theta > vega).
lol because the mkt rarely takes out full modeled decay on non-trading days; plus the mkt anticipated the impact on volume and vola from the storm on Friday.
My guess is that the prices of options - including OTM - would remain frozen, and when the markets open the positions closed at that price. No way would the options have time decay for an entire week and expire worthless while the market remained closed.
I think time decay continues, just like on weekends and holidays. This is an example of why they say trading options is risky. And why trading options using excessive leverage is even more risky. It's not like no one knew a huge storm was coming last Friday, when the market was still open. If they decide to manipulate theta, can that open them to a potential lawsuit? Afterall, if they halt theta, it helps some but hurts others. Thus, theta continues and picks up where it normally would when the market opens.
Nobody needs to "manipulate" theta or vega or any other parameter. Common mistake is to think of these parameters as inputs that can be manipulated... they're outputs, you calculate them based on what options are currently priced at. So, how are options priced? Market-makers aren't going to take a speculative position to push option prices anywhere. Just like is the case with any other security, there will be natural supply and demand. IMO, barring some other major event... there's no way buyers of options will pay as much for an option this Wednesday (for example) as they would've paid last Friday. Prices will certainly have dropped. Atticus is saying that if you look at the implied vola calculation (output! not input!), they will likely go up (as in, option prices won't drop *as much* as you'd expect from a loss of 5 calendar days).