So do I lose 18 $ on Monday like thetheta on friday is higher because it counts in saturday and sunday. Or do I lose 18 dollars for saturday and sunday so -36 dollars?
Does theta decay on Friday factor in the weekend already?
byu/MiddleMonth2097 inoptions
Posted by MiddleMonth2097
6 Comments
Theta is time decay per day, and Saturday and Sunday are definitely days
Yes
The models (Black-Scholes, BOPM, etc.) measure time in *years* and then it’s converted to days for practical use. You can use 252 days per year, in which case theta is per trading-day, or you can use 365 days per year, in which case theta is per calendar day. I don’t know what brokers and market data providers use when they calculate theta.
Zero theta decay over non market days. What you are seeing on Monday morning is Vega decay (IV tends to go up Friday afternoon and then reverses Monday morning provided no major shit happens in the world).
And you see delta effect on an option.
This question is really asked almost every weekend….
https://www.reddit.com/r/options/s/psm8l566gy
https://www.reddit.com/r/options/s/HbCsSuD6XL
https://www.reddit.com/r/options/s/1GMdmdYhPs
https://www.reddit.com/r/options/s/CuYZiVhFZS
https://www.reddit.com?utm_source=share&utm_medium=android_app&utm_name=androidcss&utm_term=1&utm_content=1
https://www.reddit.com/r/thetagang/s/iZUZVIyZi7
…
For short, options are not priced with Greeks. They are just all else equal sensitivity parameters that are derived from a model and current price.
What theta represents depends on the implementation. Classic black Scholes theta is per year. Many just divide by 365. Others use finite difference and bump the date forward (either one day, or to the next business day, one includes holidays, others exclude…)
What is certain though, time to expiry is part of pricing, and yes, time also ticks on weekends.
No. Anyone who says yes doesn’t understand what theta is. However, you’re asking the wrong question. You should be asking is the PRICE of the option accounting for the lack of liquidity on the weekend? My answer would be mostly yes.