The Myth of Theta Decay on Weekends: Explained

Contrary to popular belief, there is no actual Theta Decay on weekends. Technically, Theta Decay exists, but in reality, it doesn't play out as many assume. Here's why:

By Friday, market makers start pricing options for the upcoming Monday. Essentially, they adjust the value of options to account for the weekend. This preemptive adjustment means they remove some value from the options on Friday. Their motivation? They want to avoid buying options that will lose value over the weekend.

As a result, when the market opens on Monday, the price of options has already factored in two days of Theta Decay. This pre-adjustment means you don't get a "free" weekend of Theta Decay. Trying to outsmart the market makers is a futile endeavor.

If you pay close attention, you'll notice that the seven days of Theta Decay are actually compressed into the five business days from Monday to Friday.

So, the myth of weekend Theta Decay is just that—a myth.