Weekend Decay. 1 of 12

Transcription

1 Theta measures the amount of value that we can expect our op4ons to lose for every day that passes, given vola4lity and the underlying stock price remain the same. 1 of 12

2 Knowing this, many new op4ons traders believe that they can exploit this by selling premium into weekends, hoping to capture theta over the days the market is closed. 2 of 12

3 While this strategy may seem logical, the market is efficient. Going into weekends, op4on prices will generally reflect the weekend decay before the weekend actually starts. 3 of 12

4 In an afempt to quan4fy this, we isolated theta as best we could by looking at periods of very lifle market and vola4lity movement over the weekend. 4 of 12

5 Study #1 (slide 1 of 2) SPY, Jan Present From pre- weekend close to post- weekend open, looked for occurrences where:! SPY moved less than.25%! VIX moved less than 5% 5 of 12

6 Study #1 (slide 2 of 2) Sold 45 DTE straddle 5mins before pre- weekend close, bought back on the post- weekend open. Compared P/L to expected P/L based on theta. Expected P/L = (# of Weekend Days) x Theta 6 of 12

7 SPY Weekend Straddles # of Occurrences 45 P/L $310 Expected P/L $668 P/L Per Trade $6.89 Expected P/L Per Trade $ of 12

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9 Study #2 (slide 1 of 2) SPY, Jan Present! Isolated regular trading days where SPY moved less than.25% and VIX moved less than 5%! Chose random basket of 45 occurrences for equal comparison 9 of 12

10 Study #2 (slide 2 of 2)! Sold 45 DTE straddle on market open, closed straddle on market close.! Compared P/L to expected P/L based on theta values. Expected P/L = Theta of Straddle 10 of 12

11 SPY # of Occurrences 45 P/L $347 Expected Theta $322 P/L Per Trade $7.71 Expected P/L Per Trade $7.17 Intraday Straddles 11 of 12

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