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Time value lost overnight and during trading day - more in either?
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Time value lost overnight and during trading day - more in either?

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Trading Apprentice
Toronto, ON
 
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Time value lost overnight and during trading day - more in either?

Hello all,

I am very curious as if there is a significant difference between the time value lost from a) close to open and from b) open to close during the trading day. Assuming all else remained equal (stock price, volatility, etc). Any thoughts? studies? I do know there can be so many variables to affect it, but thought I would see the general consensus would be.

Thanks!

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  #3 (permalink)
Market Wizard
Houston, TX
 
Futures Experience: Advanced
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Brennen81 View Post
Hello all,

I am very curious as if there is a significant difference between the time value lost from a) close to open and from b) open to close during the trading day. Assuming all else remained equal (stock price, volatility, etc). Any thoughts? studies? I do know there can be so many variables to affect it, but thought I would see the general consensus would be.

Thanks!

Interesting question, but something that should be relatively easy to calculate if you have the data. If i have time later I might some run some numbers. Surprisingly a google search didn't return anything meaningful. Active Trader used to do a lot of studies like this but they went out of business last year.

I know somebody who did a study similar to this in the Energy markets many years ago. They weren't focused on Open-Close vs Close-Close but Close-Close on a Fri-Mon vs every other day. Their analysis at the time showed that for equities and natural gas, Fri-Mon close was only slightly higher than every other day Close-Close. For Crude Oil though, Fri-Mon was nearly twice as volatile as other Day Close-Close's. Interesting analysis as it would imply that you should take 2 days of time decay for Fri-Mon (as opposed to 1 or 3). The motivation for the study was actually related to the option greek charm* rather than theta. If option expiry is on Monday, the difference in your option delta at Friday close going into the weekend can be significantly different depending upon whether you assume your 1, 2 or 3 days from expiry.

* Charm is the change in Delta due to change in Time. For example if Price and Volatility stay unchanged, Charm tells you what happens to your option delta. (In the money options delta increases, out of the money decreases.)

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