Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
Time value lost overnight and during trading day - more in either?
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!
Can you help answer these questions from other members on NexusFi?
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,041 since Dec 2013
Thanks Given: 4,375
Thanks Received: 10,192
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.)