Anyone try this? Buy a calendar on a Friday, sell on Monday.
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Collecting theta on weekends
- Thread starter ferrycorsten
- Start date
Quote from sle:
In general, market-makers use business day volatility, so the option price would be down by Friday afternoon. If anything, weekend volatility is probably too cheap given the news flow.
I just so happened to buy it late afternoon, with sigma1>sigma2 by 40 points. And earnings is Wednesday.
Let's say an option at 4 pm is worth 100 bucks and theta is 10. When the market opens the next day, and price remains unchanged, does the day start off with the option being worth 90? Or does it decay down to 90 by the end of the day?
the vol is leaked out during the day on friday and most of it is gone by early afternoon (12 - 1 pm est). if you're long a call/put and it's past noon on fri don't sell b/c you're trying to beat the weekend.
Quote from FrankSlaughtery:
the vol is leaked out during the day on friday and most of it is gone by early afternoon (12 - 1 pm est). if you're long a call/put and it's past noon on fri don't sell b/c you're trying to beat the weekend.
Yeah, you're short theta and long IV, so you might just want to take the position at noon on Thursday, and exit at the close on Friday. But (in the voice of David Feherty) I think everyone's thought of that.
Quote from jnbadger:
Yeah, you're short theta and long IV, so you might just want to take the position at noon on Thursday, and exit at the close on Friday. But (in the voice of David Feherty) I think everyone's thought of that.
Isn't short theta when u sell (collect premium) since theta is negative to begin with? So if u were long a call or put u would be long theta since u bought the option?
I still don't understand. Does daily erosion (theta) occur 7 days a week? Let's ignore the impact of vol assuming we bought Friday morning. Does erosion occur from Friday 4 pm through Sunday night? Or is it frozen until the market re-opens?
Best thing would be to do some (back)testing. If there is such an effect that can be traded profitably, you need to think the risk you have to take to realise this profit. Positive theta means negative gamma and any news for example during the weekend that can cause a big price move on Monday's open can hurt you.
Quote from kapw7:
Best thing would be to do some (back)testing. If there is such an effect that can be traded profitably, you need to think the risk you have to take to realise this profit. Positive theta means negative gamma and any news for example during the weekend that can cause a big price move on Monday's open can hurt you.
+1. IMHO there's no watch to capture the weekend effect b/c as another poster said someone would have thought of that b/c by definition it would be free money all else being equal (e.g. just sell a ridiculous amount of premium friday afternoon then go to the bank monday.
re the question about premium being "frozen" over the weekend i guess technically it is b/c no one can trade. like i said before there are only two ways premium can come out b/c of a weekend - before or after. it doesn't come out after (like all at once at 9:30:01 monday morning.
Quote from ferrycorsten:
Isn't short theta when u sell (collect premium) since theta is negative to begin with? So if u were long a call or put u would be long theta since u bought the option?
I still don't understand. Does daily erosion (theta) occur 7 days a week? Let's ignore the impact of vol assuming we bought Friday morning. Does erosion occur from Friday 4 pm through Sunday night? Or is it frozen until the market re-opens?
A lot of time decay happens on Friday in anticipation of the weekend, simply because there is no trading over those days. If someone could provide an app which measures how much theta occurs on Sunday while I'm watching the masters tournament, I'd like to know about it, lol.
Your comments make me think you consider theta a type of check written to you each day. Uh-uhh. It's simply a way by which models can account for loss of extrinsic over time. Events like earnings, political announcements, and opinions on stat vol by institutions make predicting theta burn unpredictable, including the burn associated with the weekend. Theta is rarely a continuous function.Quote from ferrycorsten:
Isn't short theta when u sell (collect premium) since theta is negative to begin with? So if u were long a call or put u would be long theta since u bought the option?
I still don't understand. Does daily erosion (theta) occur 7 days a week? Let's ignore the impact of vol assuming we bought Friday morning. Does erosion occur from Friday 4 pm through Sunday night? Or is it frozen until the market re-opens?