I am confused about premium pricing during weekend

For example banknifty on Friday 3.30 pm 18600 CE was 619.9 and 19000 CE was 428.5

Now I read about theta decay but when I refreshed on Saturday or Sunday I don’t see any change so when exactly this theta decay applies ? it is not daily?

And I have seen when market opens at 9.15 Monday …prices are drastically up or down …
But if not trading place between Friday 3.30 PM and Monday 9.15AM - how can price suddenly change at 9.15 am and 15 to 30 seconds?

All greeks are theorotical. Options prices are determined in real trading only.
You know the old question of “Hen first or Egg first?”

Theta and all other Greeks were invented by mathematicians “after” observing the price behaviour of Options contracts.
And it wasn’t other way round that they came up with theta and then forced traders to follow them.
They observed the friday closing prices and Monday opening prices over years, underlyings, markets and then deviced a mathematical formula to approximately calculate the “price reduction” and then called it theta decay.
IT is not a continuously decaying thing.

It is so because the underlying assumption while calculating Theta Decay is

  1. Price remains constant i.e. Nifty or Banknifty price on friday close = monday open
  2. Volatility remains constant
    We all know that this is almost impossible.

Thanks…can you please answer my question ----
But if not trading place between Friday 3.30 PM and Monday 9.15AM - how can price suddenly change at 9.15 am and 15 to 30 seconds?

Pre market orders

No premarket in FnO

Short answer because trading startes at that time only.
Suppose a option closed at 200 and theta calculated is 50 the on monday ideally it should open at exactly 200-50 = 150…
PROVIDED spot, IV etc remain constant. But they also change drastically. So thousands of traders put thousands of orders at market , limit, SL etc putting their own prices. As soon as matching happens ( in micro seconds) LTP is flashed on your terminal. Then all the traders align themselve with new open price and then LTP move as per tug - o - war between buyers and sellers.

1 Like

Thanks …yes that is what I wanted to confirm that no trading happens during weekend or after hours. All this huge movement in price is because those first few micro seconds of trading.

1 Like

So IV changes during weekend (even without trading) ? if yes can see the change in IV during weekend ?
And if no trading happens what causes change in IV ?
For example currently due to finance minister announcement IV changed during this weekend?
Finally is there any institution like NSE or BSE changes the IV?

IV number is calculated from Option price and not vice versa.

I will sincerely suggest you to forget everthing and focus on price, price action and making money. Making money includes strategy, psychology, Money management, etc. etc.
Do you want to do PHd in mathematic? The guys who invented all these got nobel prize for the same. But he do not trade and is happy with academic life.

Everything freezes at 3:30 :clock330: and gets to life only at 9:00 :clock9: next morning.

1 Like

And if you want to really reaaly master the theory and mathematics I suggest you read “Sheldon Natenberg”. And by read I mean front to back page by page.
No doubts or queries in between. Just notedown all the queries ( which will be more than 100 for sure. Book is extremely hard). Then I promise you that I will solve all your queries.