Options Jive

Monday – Friday | 8:40 – 9:00a CT

Theta Decay Over the Weekend

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

All options strategies have a theta value, and that theta value goes into or comes out of a traders account with every passing day depending on the side of the strategy the trader is on. From naked options to strangles to calendar spreads, options strategies increase or decrease in price as a function of time. This is called theta, or time decay.

Here at tastytrade, we prefer to be on the long side of theta; that is, we like to have our options strategies pay us with each passing day, all else equal.

However, if theta pays traders for every passing day, then why wouldn’t we wait to initiate trades until Friday of each week so as to benefit from free time decay over the weekend while the options market is closed?

Tom and Tony take issue with this reasoning, and they go on to support their stance with some historical data. The guys talk about how stocks and markets still move over the weekend, but the move isn’t realized until Monday. This shows that there is no free weekend theta as the market does not have to open unchanged on Monday morning.

Finally, Tom talks through a recent example of when the market did open unchanged and time decay did not pay the trader for the whole weekend. Check out what the boys had to say on this topic above.

Options Jive More installments

See All »

Latest tastytrade Videos As of July 18

Most Shared From the last 30 days