March 2009
Intermediate to advanced
176 pages
2h 53m
English
Content preview from Trading Options at Expiration: Strategies and Models for Winning the Endgame
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Chapter 3Day Trading Strategies
Expiration Thursday
In Chapter 1, “Expiration Pricing Dynamics,” we saw that the amount of overnight time decay experienced by an option contract rises sharply as the final trading day approaches. Time decay is a simple dynamic. Because the options market is open for 6.5 hours each day and closed for 17.5 hours, the percentage of value lost each evening while the market is closed rapidly increases until, on the evening before the final trading day, 31.3% of the remaining time is lost. As mentioned earlier, the market anticipates these price distortions and responds with a combination of implied volatility swings and widely varying bid-ask spreads. Buyers respond to escalating overnight time decay ...
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