Weekend Theta

Yes. Options decay based on calendar days (365/year), not trading days (252/year). Time passes even when markets are closed. The theta decay continues over Saturday and Sunday, which is why weekend theta strategies work.

It varies by structure and IV, but typically you might capture 15-25% of your weekly theta over the weekend. For example, if an iron condor has S$50 weekly theta, you might capture S$10-15 over the weekend (minus any gap impact).

Yes, gap risk is real. The stock can open Monday significantly different from Friday close due to weekend news, US Friday moves, or global events. Use defined risk structures (iron condors) and size appropriately.

No - markets are closed. You can't have a traditional stop loss execute over the weekend. That's why defined risk structures are preferred - your max loss is built into the position. Have a mental stop for Monday morning.

Most weekend theta traders close Monday morning to capture the weekend theta and eliminate further risk. You can hold longer if the position is healthy and you want additional theta, but you're then exposed to normal weekday trading risk.

Weekend spans roughly 2.7 calendar days (Friday 5 PM to Monday 9 AM). Multiply your daily theta by 2.5-3. Example: S$15/day theta × 2.7 = ~S$40 weekend theta. This is approximate; actual capture varies.

Some argue that market makers adjust Friday afternoon prices to reflect upcoming weekend decay, reducing actual capture. Evidence is mixed. In practice, most traders find significant weekend theta remains capturable, but it may be slightly less than pure theoretical.

High VIX implies larger expected gaps. Adjust by: (1) Using wider strikes, (2) Reducing position size, (3) Potentially skipping the weekend entirely. A common approach: Size = Base × (20 / Current VIX).

STI is diversified across multiple stocks, which can reduce idiosyncratic gap risk. Individual stocks may have higher IV (more premium) but concentrated risk. Many traders prefer STI or the most liquid bank stock (DBS).

If Monday is a Singapore holiday, you capture even more theta (3-4 days). However, gap risk also increases with more time for events to occur. Consider this extended period in your sizing and strike selection.

Collect historical Friday close and Monday open prices for the underlying. For options, you need Friday afternoon option prices and Monday morning option prices. Calculate P&L for each weekend. Track win rate, average P&L, and distribution of outcomes. Test out-of-sample.

Professional desks often reduce risk into weekends rather than maximize theta capture. They're aware of gap risk and may hedge or flatten positions Friday. Some desks explicitly trade weekend theta, but with sophisticated gap risk models and VaR limits.

Yes, there's correlation. Model: Singapore gap ≈ α + β × US Friday return. Estimate β from historical data. After US closes (4 AM SGT Saturday), you have information about likely gap magnitude/direction, though you can't adjust Singapore positions then.

Analyze historical weekend gap distribution. Set strikes beyond the 90th or 95th percentile gap. If 95% of gaps are less than 2%, set strikes 2.5%+ away. Adjust based on current VIX - use wider strikes when VIX is elevated.

If earnings are Friday after close or Monday before open, avoid that underlying for weekend theta. The overnight gap risk from earnings far exceeds normal weekend risk. Check the earnings calendar before every weekend trade.