What happens to the dailies on SPY/QQQ that happen to expire on the day when an unexpected national holiday is announced? Reason I ask... I don't think Jimmy Carter is doing real well. Also, what about Theta on all the other options, albeit only one day... doesn't that mess up the modeling?
I say any day, traded or not, is included in the model. The market might be closed but the stock prices are still moving.
True, but just for discussion sake... what if it's a big earnings day, like say a day when Meta, or AMZN, etc report. Or a major Dow stock was slated to report that AM? They might still report, but the market reaction will be delayed by a day. So the dailies that expire that afternoon... their IV gets slammed. I would think. And what even happens to those option chains that were slated to expire that day? They can't just disappear.
What if it happens if they decide to have it on a triple witching Friday... or do the powers that be take that into consideration? "Mr. President, bad news... we're gonna have to put Jimmy on ice for a few more days, we just got a call from Goldman Sachs. Friday is definitely a no-go."
Wouldn't participants be given a chance to react at or before expiry which would necessitate an extension?
I have no idea, that's why I asked. "No Sir, Wednesday and Thursday are out too. Wednesday Chair Powell speaks and Thursday Apple reports." ".... Yes Sir... I understand we can bump Powell, but do you realize what that does to the algorithms? They already know where they're gonna close the S&P at on Wednesday, and to be blunt Sir, I don't think we wanna upset those guys, our PAC's need the donations. Let me have Janet call Kenneth first and see what he says."
I presume the options will expire with a price derived from the last closing price of the undelying symbol. But this should not change the fact the last stock price is as random as it's predicted by the statistical model.
It would all seem to work out somewhat normally, I would think. If options expire on a Friday which is a holiday, then it is "preponed" to close on Thursday. And the holiday would not be on the day the president dies. It is by executive order and is usually the day of the funeral. So there would be some trading days in there to adjust/react as needed. So react and adjust as needed. And yes, losing a day may screw up someone's algo or previous plans by a micro-smidge, but, whatever. It is one more bump and wiggle in the expiration cycle. Could be an air balloon on that Thursday too and everyone will act like their private parts are going to fall off. Methinks.
I remember the last time something like that happened was when Trump declared an impromptu national mourning day when George H.W. Bush passed. What happened was just basically free theta for the options that were supposed to expire on Wednesday but were expiring on Tuesday instead but since it was announced well ahead of time(the declaration was made on Dec. 1, 2018 to have Dec. 5, Wednesday as a national mourning day), it only benefitted/screwed those who sold/bought the Wednesday-expiring options ahead of the announcement but for the ones who sold/bought the options after the announcement, there wasn't any benefits/losses. The options price was quickly adjusted for the announcement as soon as it was made. That was as far as I can remember. I remember contemplating shorting the SPX after the announcement and the price had already been drastically cut to adjust for the increase in theta. So unless there are some dramatic market-moving events happening leading up to the expiration, then those who bought the options would have suffered a bit because the number of days available for any volatility-producing events had been cut by one day.
If I recall, options just exercise based on last official close. Long holders basically lose their theta. the dawn has some facts wrong. Trump didn’t shut the stock exchange down. It’s NYSE policy to shut the market down in honor of a dead president. When trump dies I will use that day to go dancing.