Mikael 31 Report post Posted August 28, 2013 Hi, Just wondering, when we sell an option, is it better to sell near the end of the trading day? (ie. does the negative theta we see get deducted at the end of the trading day or right before open the following trading day?) thanks Share this post Link to post Share on other sites
PaulCao 51 Report post Posted August 28, 2013 Hi, This is a really good question. I don't have a good answer for the time during the day; I think the general trend is VIX spikes at both the beginning of the day or end of the day. Although, it's not cut and dry depending on situations. http://finance.yahoo.com/q?s=%5EVIX I noticed that Kim likes to enter calendars on Thursday's, presumably to collecting the weekend theta; there's a theory on this forum coming from Jeff Augen that weekend theta is already baked in by Friday afternoon (you can search for the thread where people dive into this). In general, I find trading weekly options the best days to enter/adjust trades is on Thursday when the weeklies are just released, and also on Wednesday, two days before the weeklies expire. The latter because you benefit from the weekend theta, especially if Friday is a typical off-day, the former because it is the point I find at which theta decay accelerates and there is still some juice left on the OTM chain, Please add or correct any of my thinking as I'm not an expert on this, Best, PC Share this post Link to post Share on other sites
Marco 223 Report post Posted August 28, 2013 (edited) yes I would agree there is definately a week end effect that is priced in prior to the Fri close (this article shares that view, and Jeff Augen wrote a lot about it) I'm sure MM's also use the same priciple towards the end of the day and price in some of the over night decay. I would say the effect is much weaker though and can easily be offset by an overnight move. I'm sure Augen also looked at that and prices of atm straddles at the close and the open but I can remember his conclusion and can find anything on it now after quickly googeling it ... I would say unless you try to exploit that pattern of overnight decay by trading options at the close and open and you hold your position a few days or longer that shouldn't be the most important factor in your trading decision. Waiting an hour to be closer to the close may change IV or spot price (in your favour or against you) and that will likely impact your trading price much more than any overnight decay thats being priced in. Edited August 28, 2013 by Marco Share this post Link to post Share on other sites
Mikael 31 Report post Posted August 29, 2013 interesting. seems like what that particular MM does (marco's link) is just set his software's clock forward one day thursday midday (11EST) onwards. so essentially if you sell a premium to him after thursday midday the price would be the same as (if everything else held constant) friday midday (+1 day in theta decay) and by Friday morning it would be already saturday morning, and by friday close it would already be sunday 4:00pm. so theoretically if you want to take advantage of the weekend decay it would be best to sell premium thursday morning before 11EST. although it might be a small edge, but if you are trading large lots it could squeeze out that extra % of performance. Share this post Link to post Share on other sites
Mikael 31 Report post Posted August 29, 2013 by the same token, i guess they would adjust their clocks forward one day prior to the close on other trading days as well to eliminate the edge traders have by trying to sell premium right at 3:59. so i guess a general rule would be it's better to sell in the mornings. Share this post Link to post Share on other sites
Marco 223 Report post Posted August 29, 2013 As mentioned I think the weekend effect is significant enough if you trade weeklies to take that into account but the overnight effect is smaller and probably drowned by spot and IV moves Share this post Link to post Share on other sites
