Monday Expirys

G

garyw

Active member
Gold Member
TOS term IV consistently reports Monday Expirations with a lower IV than the following Wed, and the preceding Friday.
Can someone with another broker, such as IB, post what they observe? -- I suspect they show the same (lower IV than the neighboring expirations).

If you are curious and don't believe this one sample, on TOS, go to thinkback and pick dates in history. -- IMHO: This is NOT a TOS flaw! It results from Market makers using trading days instead of calendar days, but this does alter the price of the Monday Expiry options!


1635462855164.png
 
Last edited:
vega4mike said:
It's basically due to Market Makers marking down the weekend decay on Friday. Dan Sheridan used to talk a lot about this many years ago & that was way before weeklies were introduced.

https://www.elitetrader.com/et/threads/why-do-monday-expirations-have-lower-iv-than-others.362443/.... Recent link on elite trader where it was discussed.
Click to expand...
If one examines using Trading days instead of Calendar days for time to expiration, the anomaly (lower IV on Mondays) is gone.
Most of us, including TOS, use calendar days for time to expiration. My post was intended to solicit input on IBK or other's for how they address time till expiration. -- What vendor (s) use Trading Days instead of Calendar days for time till expiration (TOS is Calendar days)?

BTW: That is my post on ET.
 
Last edited:
I observed this phenomenon last year after the crash when I started trading calendars and after trying different expirations the Friday Monday calendar was always the cheapest
The last post from ET was interesting to me "Long Monday, short Friday calendars show great PnL graphs in TOS but the "edge" would never materialize. "

That's what I was doing and it actually does work but you have to stay in it almost into expiration which brings in the gamma risk
It worked very well in high IV after the crash now it's not as good because the tent is very narrow and with some gap opening it could easily go out of the tent

It's true though that TOS modeling is exaggerating the p/l for the calendars so the daily advance in TOS does not match reality so you may not be able to close the trade early but as long as you are under the tent on or close to expiration you should see positive p/l
 
For a visual reference: Attached find a zipped file with two HTLM 3-D Scatter plots of SPX IV surface data for yesterday close using Calendar Days VS Business Days for "DTE" interpretation. -- The Business day version ASS-U-MEs a Business day is 24hours, even though trading is only about 6.5 hrs of it. The html may take time to render, depending on the capabilities of your PC.
 

Attachments

You must log in or register to reply here.
Top
Contact Us