Do options decay over the weekend?

Question

You are long a gamma-heavy book of short-dated options going into a Friday close. The market is closed Saturday and Sunday.

Do you pay theta over the weekend even though you can't trade? What does that mean for a long-gamma position held over a weekend?

Accepted Answer

Yes, time decay runs on the calendar, not the trading schedule. An option's time value depends on the actual time to expiry measured in calendar days. From Friday's close to Monday's open, three calendar days elapse, so roughly three days of theta come out of the option regardless of the market being shut. The asymmetry is the problem for a long-gamma holder: - You pay three days of theta over the weekend (time passes, value erodes). - You cannot collect any offsetting gamma P&L, because the stock isn't trading, there are no moves to scalp Saturday or Sunday. So a long-gamma position "bleeds"…

Do options decay over the weekend?

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