The one thing we have learned in our years of trading and mentoring option traders is that there is an exception to every guideline out there. One of the advantages I have as one of the few educators that still trades is that I feel like I catch some of these exceptions (this is on top of all the other benefits of being active in the market just like one's students). The weekly's, it appears, have one of these exceptions to the guideline.
In yesterday's blog we mentioned that in every example of the AAPL weekly's the options decayed much more on Thursday than one would have expected except one date. That date was Thursday August 5th. I am sure some of you have figured out that it was because of the employment report that was coming out the next day.
We saw yesterday that our straddle decayed its full .52 cents of theta on August 19th, plus an extra .40 plus cents. We surmised that the extra decay was weekend decay. On August 5th the ATM straddle decay on .30 all day. That is less than the daily theta, and certainly does not include any weekend decay. The next day, the Friday post non-farm payrolls, the AAPL straddle had an extremely accelerated amount of decay.
We stated that the weekly straddle gave up around 25% of its value from inception to end of day on Friday. More than half of which was on Thursday. In this case, the straddle still gave up around 25% of its value, but gave up almost 90% of it on Friday August 6th. This drop can be seen in the DRAMATIC change in IV from Thursday to Friday.
Notice the IV on close of business Thursday
Notice the large drop in implied volatility of the ATM Strike:
What does this mean to the trader, if one wants to trade weekly options into employment; there is not the usual Thursday morning rush. The trader can wait that day on Thursday, only giving up a nominal amount and either sell at the end of the day (this is still a risky proposition), or sell on Friday morning when the market opens.
In the second scenario the trader DOES lose the rest of Thursday at the open, and part of Friday morning, but still has a good chance to catch a chunk of the weekend WITHOUT having to deal with the employment report. I can not be sure this trend will continue, weekly's are pretty new, but for now this may be how the weekly's act.
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