What's the Option Decay for Holding Overnight?

RE: What's the Option Decay for Holding Overnight?

Easy to figure out. Check out the option chains on stocks that open at, or very close to the previous days close. You will find that there is very little if any option decay in those situations, unless there was a scheduled event - such as earnings.



:)
 
schizo said:
Say I want to play the company earnings by buying the options at the MOC and sell at MOO. How much am I to expect to lose just on time decay?
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If you're playing earnings on the front contract (weekly or monthly) for long options, your bigger problem would be the change in IV, not theta. Keep in mind that IV will collapse after earnings; so if the "price of the underlying doe not change," it will be something like this:

~LossInPremium = thetaForTheStrike + (Vega X ChangeInIVPercent)
 
I have seen it asked about premium loss over a weekend, and a few replies from folks who supposedly had worked as options market makers said that the price at the close would reflect the decay over the weekend. From this I would assume your loss would be little or none based on your question.
 
The Greeks work in concert- vega is deceptive, IV varies minute by minute, so to think theta is an absolute is nonsense- if it worked in isolation nobody would buy options, as the trade would automatically incur a loss. You do of course incur a loss by buying in the bid/ask spread and paying commissions. The real world is not like the classroom.
 
It's not worth figuring out.

Your move based on earnings will blow away any theta degradation in the overnight. On a typical day with no news expected, you may see some accelerated theta loss about 90 minutes before the close and then again about 60 - 90 minutes into the next open.

Your results may vary, but I think it's very difficult to play for profits based on time value decay through earnings release.
 
schizo said:
Say I want to play the company earnings by buying the options at the MOC and sell at MOO. How much am I to expect to lose just on time decay?
More...
It's impossible to predict. Yes, generally, there will be some IV collapse.

But often, at the next open after EA, IV can be all over the place as stat. vol may still be expected to be significant.

Really depends on the Co. specific situation, including the significance of any pending conference call.
 
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