Tackle Today: How Time Decay works with Holidays
November 23, 2022
The looming Thanksgiving holiday makes now a perfect time to highlight how options pricing behaves around market closures and weekends. Recall that time is one of the inputs to the options pricing model and that time decay is one of the primary drivers of performance. Specifically, calls and puts lose value as time passes.
So how does time decay work on holidays and weekends if the market isn’t open? Do options lose two days of value over the weekend? If they did, then wouldn’t it be better to sell them on Friday to capture the “free money?” Or, positioned differently, wouldn’t it be better to buy options on Monday to avoid the two days of decay that strike over the weekend?
It would if that was how time decay worked. But the market is pretty efficient. Generally, you will see options price out the weekend decay by the time the market closes on Friday, such that you don’t see a dramatic change in option values between Friday’s close and Monday’s open.
The same goes for holidays.
Video Of The Day: Queen’s Court – Pick an Options Trade: Delta or Theta on $DFS & $DKS?
On today’s Queen’s Court, coaches Emily and Matt have a discussion on which options trade they should take on $DFS and $DKS: Delta or Theta?
Chart of the Day: U.S. Dollar ($UUP)
The rollover in the dollar continues and is one of the catalysts buoying equity prices.
Today’s line up
Traders Lounge 11 AM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coach Gino Poore discussed Build Theta for the ThetaGiving Holiday or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Trade Masters 7:00 PM EST
Every Wednesday at 7 PM EST join us on the Trade Masters where two Coaches go head-to-head to see who can find the best trading setup.
Trading Justice 503: Theta-Giving
In this episode, Mark and Matt are joined by Gino Poore to discuss a little Theta-Giving.
Theta is an amazing core concept in trading and Gino discusses theta in general and how it applies to these long holiday stretches. There are so many ways to make money in the market and theta is certainly near the top of the list.
In this Thanksgiving week let us take a moment to thank you for being part of the podcast community. We love our community so much and wish you all a fantastic Thanksgiving!
Listen to this episode in the player below.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.