Carrying inventory over a long weekend

Question

You make markets in an energy future. It is Friday afternoon before a three-day holiday weekend, and geopolitical headlines are a live risk. Your book is long 800 lots from the week's flow, and your overnight limit is 1,000 lots.

How much inventory do you carry into the weekend, and how do you decide?

Accepted Answer

The question is not "am I under the limit," it is "would I put on 800 long lots and go dark for three days, unable to react to any headline?" Almost certainly you would trim hard. Three features make weekend carry worse than an ordinary overnight. 1. The market is shut while news is not. Over a normal night you can at least trade a related instrument in another time zone. Over a three-day close you are frozen: a Saturday headline gets priced only at Tuesday's open, all at once, as a gap. Your ability to manage the position is zero for the whole window. 2. Size to survive the gap, not the aver…

Carrying inventory over a long weekend

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