Imagine that you could trade every hour, every day, even Saturdays and Sundays. Would that continuous pricing and extra trading hours in any way have any effect on the pricing of options? It would be interesting to hear some ideas.
Perhaps the theoretical price would be different slightly because of using sqrt(356) instead of sqrt(252) in the pricing models. Also, there wouldn't be a weekend effect on volatility.
How about theta and gamma? If the market is open two more days per week, that means two additional day to gamma scalp and make money from movements in the underlying, even though the time to expiration doesnât change. Will it just lower my volatility if I can gamma scalp all the time, or will it also increase my profit?
1) USA-based traders will still tend to stick to an 8:30am to 3pm (Chicago Time) schedule. 2) Bid-ask spreads would widen out dramatically over the weekend. :eek: 3) Just because the markets are "open" doesn't mean you have to be awake 20 hours per day to trade.
4) if anything, 24-hour liquidity (e.g. in bond futures or equity futures) results in lower volatility because open gaps are taken out
I think this is a very good question. I wonder if anyone has done research on IV for any instruments as it increased trading hours. I suspect too it would lower volatility, but probably not too significant of an effect... liquidity in overnight trading sessions is very questionable.
The liquidity for the option market could be non-existent over the weekend and night time. The main issue is the hedging alternatives. What would happen to the daytime pricing of options if you could delta-hedge your position automatically for every time frame or price deviation that you like. There is enough liquidity and reasonable spreads in several futures markets (and forex) to do this in the night time at the moment, but not in the weekends.
i think es options have reasonable markets at night. i've never personally looked at them, but a co-worker logs in and checks them on occasion.
Oanda is open Saturday and Sunday (iirc they are only closed for maintenance friday evening EST), so you can hedge there (if you are in otc fx options or 6E, etc.), in theory. 10 pip spread (maybe a little more) on Eur/Usd on sat thru sunday morning, goes down to 5 pips by 1-2pm EST Sunday (NZ and australia online), and ofc everywhere else is running by 5pm. Eat a 10 pip spread to hedge a possible 100+pip move might be okay for some. Never looked into it myself but it probably came in handy on those fall weekends in '08 when no one was sure what would happen by Monday. If it's a real macro/geopolitical event tho, would imagine those spreads, spread. I believe there is or was another fx broker open on the weekends, can't recall now though.