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Negative Theta Options over Weekend
- Thread starter TraderGreg
- Start date
Quote from xflat2186:
Fund? Its just your retail account right?
Basically it sounds like you try to time the markets. Legging into a position where you sell a bit of premium as you try to catch up moves in the market.
Good luck with that one.
Basically, I'm not going to lay out exactly what I am doing but the performance speaks for itself. You don't have it figured out. An iron condor is one example that fits into the larger philosophy, but my version is not textbook.
I take it that with your "good luck" remark that you believe any strategy which relies on market timing will not succeed. If we exclude any strategy that involves timing, what do we have left?
This account is made up a large set of hedges, but I can see where the term "personal hedge fund" could confuse.
Quote from TraderGreg:
I am a stock trader who is relatively new to trading options. What do options traders thing about holding negative theta options over the weekend?
It seems to me that theta decay is quite high for two full days of no trading if you are negative theta, and closing and re-opening positions is actually cheaper (with trading commissions, and as long as bid-ask spread is manageable)
I posted this question on another site, and received a reply saying that commissions were high and that weekend news risk is a part of and can often help with trading. But, isn't the goal of trading to eliminate unpredictable external risk and take executable, higher probability trading?
What do you do here? Thanks for your help.
Greg
I'm told MM price in weekend decay on Friday afternoons.
Personally I like to take a snapshot of my long theta positions before the weekend on Fri close, and by comparing them with what I see on Monday open, the feeling I get is that on Monday opening, some more decay is priced in.
Logically it wouldn't make sense that you are paid nothing to assume weekend risk. They may take out some premiums on Fri afternoons, and some more on Monday morning.
So as a holder of long options, if you decide that commissions and slippage still make it worth your while, you may want to sell your options on thurs close or early friday morning, and buy them back on monday, late morning.
this is just my theory, I suggest you put on some simulated vega neutral, theta positive positions over the weekend and find out for yourself.
You got negative theta over a weekend?
I thank you, my wife thanks you, my dog thanks you. I really appreciate your contribution to my lifestyle.
Keep it up.
PS I think you are asking the wrong question. The real question should be "Do I know what the hell I'm doing? Somebody please help me."
I thank you, my wife thanks you, my dog thanks you. I really appreciate your contribution to my lifestyle.
Keep it up.
PS I think you are asking the wrong question. The real question should be "Do I know what the hell I'm doing? Somebody please help me."
Quote from BeatingtheSP500:
Basically, I'm not going to lay out exactly what I am doing but the performance speaks for itself. You don't have it figured out. An iron condor is one example that fits into the larger philosophy, but my version is not textbook.
I take it that with your "good luck" remark that you believe any strategy which relies on market timing will not succeed. If we exclude any strategy that involves timing, what do we have left?
This account is made up a large set of hedges, but I can see where the term "personal hedge fund" could confuse.
It appears as if you're unclear on what a hedge fund is...
Hedge funds are set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.
They're not ones personal capital in a retail brokerage account. Your performance is not really known, all you have presented is a number on a website. For all we know you could have put any number down there is no substance behind it.
Legging into a few trades are not "hedges" nor does hedging an established position constitute a "hedge fund"
As far as timing the markets with options, its not me who does not believe its what history has proven time and again. As far as whats left there are a myriad of strategies which are not centered around trying to time the market.
THats not the topic of this thread sorry to the original poster for getting off track.
Time decay is taken out of options for the weekend usually beginning on Friday as the options are priced days forward throughout the day on Fridays. Each firm may do it slightly differently but ulitmately the market sets the price. Dont forget you're talking about the future theoretical value of the options and anything can happen over the weekend to change the variables you have forcasted for Monday's prices.
Quote from TraderGreg:
A trader I know also told me that the MMs start lowering the implied volatility a bit above normal to adjust for the weekend, and then raise it a bit above normal on Monday. Any remaining gap is much less than would be anticipated by a model. I get the idea -- no obvious holes in the market.
Thank you all for answering!
Best Regards,
Kevin
This is right on the mark...
Quote from xflat2186:
It appears as if you're unclear on what a hedge fund is...
Hedge funds are set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year.
They're not ones personal capital in a retail brokerage account. Your performance is not really known, all you have presented is a number on a website. For all we know you could have put any number down there is no substance behind it.
Legging into a few trades are not "hedges" nor does hedging an established position constitute a "hedge fund"
As far as timing the markets with options, its not me who does not believe its what history has proven time and again. As far as whats left there are a myriad of strategies which are not centered around trying to time the market.
I doubt you have any grasp what my trading philosophy is. I'm not going to explain it in detail. If you think it's legging into a condor then that's what I'm doing then. The site is a public stating of my performance which can be proven in 1 minute to someone sitting across the desk interviewing me. What would be my motivation for creating numbers out of thin air? Instead of a 32% excess return over the SP500 over the past year why not 132% or 532%?
I apologize for using the term "personal hedge fund".
Quote from TraderGreg:
I am a stock trader who is relatively new to trading options. What do options traders thing about holding negative theta options over the weekend?
It seems to me that theta decay is quite high for two full days of no trading if you are negative theta, and closing and re-opening positions is actually cheaper (with trading commissions, and as long as bid-ask spread is manageable)
I posted this question on another site, and received a reply saying that commissions were high and that weekend news risk is a part of and can often help with trading. But, isn't the goal of trading to eliminate unpredictable external risk and take executable, higher probability trading?
What do you do here? Thanks for your help.
Greg
A trade that worked well when I was in T-bond options was to sell premium Thursday before a significant Friday-morning economic number. Premium was usually pumped up in anticipation of the number.
When the number came out it was generally a non-event, and premium would collapse. Then it would collapse more in anticipation of the weekend time decay. When it worked, it was a premium seller's dream.
Of course, every now and then the number would be a surprise, the bonds would move, and ouch! But that's premium selling for you.