No, theta decay does not happen on weekends.
Theta decay, also known as time decay, refers to the loss in value of an option over time. This loss occurs regardless of whether the market is open or closed.
Here's why:
- Time Value: Options have a time value component, which represents the potential for the underlying asset to move in the option holder's favor before the expiration date.
- Passage of Time: As time passes, the time value component of the option decreases, regardless of market activity. This is because there's less time for the underlying asset to move significantly.
- Weekend Closure: While the stock market is closed on weekends, time still passes, and the time value of options continues to decay.
Therefore, even though the market is closed, the theta decay process continues.
