SPX 1170 Feb call

basically, the big risk lies in the fact that a big move does happen over the long weekend and you get caught short gamma, resulting in a big delta position on the opening on tuesday erasing all your gains from your theta. In other words, if the market moves big you get killed.
 
Quote from cvds16:

basically, the big risk lies in the fact that a big move does happen over the long weekend and you get caught short gamma, resulting in a big delta position on the opening on tuesday erasing all your gains from your theta. In other words, if the market moves big you get killed.
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Well, what if you have on a bfly or something to hedge a big move, I guess it depends on how much theta you can gain over a long weekend; like the other poster said, one would probably need a very large position to capitilize on it (or not?)
 
its a trade-off here and the result will stay the same (a big move will result in a big loss, only less so, but then there will also be less theta to gain), so i see no gain in using a butterfly.
 
The answer is the spread. If you pay the spread to get in and out of the trade this trade will have a negative expectancy. Do the math. Especially if you do a fly with three legs. You are really not making much on theta over the weekend. Maybe a nickel or dime in decay but you will pay way more then that on any large spread.

Now if you sell puts and short stock, well, you run the risk of a large up move on monday. Btw, mondays are notorious for big moves due to the large number of events that unfold on weekends. Something to think about. Now if you are a MM on the floor this idea is much more pragmatic because you can earn the spread, take in the weekend theta and then earn the spread again when you unwind it on monday. Now you know the value of an exchange membership.
 
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