Time extention pressure on option seller
Harinder Kumar Sahu
Founder of KingResearch Academy. Experienced Stock Market Trainer, Strategy Maker, and Investor. Passionate about empowering individuals with knowledge and skills to succeed in the financial markets.
??Time extension of the stock market will affect option sellers in such ways??
?? With longer trading hours, options will naturally experience more time decay, potentially reducing their value for sellers.
For example, options closer to expiry will generally exhibit faster theta decay compared to longer-dated options.
?? Extended trading hours expose options to additional news and events that could trigger sudden price movements. This uncertainty can amplify potential losses for option sellers, especially if they haven't properly hedged their positions.
?? To compensate for the increased risk and time decay, option sellers might demand higher premiums during extended trading sessions. This could benefit sellers but make options less attractive for buyers, potentially reducing overall trading volume.
?? Employing effective hedging strategies can significantly mitigate the risks associated with time decay and unexpected events. Delta hedging, vega hedging, and gamma hedging are common approaches that can help option sellers manage their exposure.
?? Volatility plays a key role in option pricing. Higher volatility translates to faster time decay and potentially larger swings in option prices, while lower volatility leads to slower decay and more predictable behavior.