However as we approached Thanksgiving, which was a four day holiday this year, the market makers began to crush down the IV, so as to artificially or prematurely adjust the theta out of the market to a point where prior to the Thanksgiving long weekend, the thetas values reflected the post holiday values. What this effectively means is that you cannot sell premium prior top the holiday break on say the Friday and expect to get the benefit of free theta without any market risk over the weekend because the markets are shut. This is because the market makers have adjusted the IV and theta values by the close of business on the Friday to reflect the values on market open on Monday. 
The same situation has happened again over Christmas and again as we go into the New Year. If you click on the RUT graph on the right to increase it's size, you will see that at the holiday period progressed the IV levels for the RUT continued to fall. Some of this decline was due to the progressive rising prices for the RUT but again, some of the decline was artificially manipulated by the market makers not wanting to give away free Theta over the holiday break while the market was closed..Cheers
1 comment:
You will need to shift IV20days backwards to be able to draw a conclusion that options are overvalued.
The IV tells us about the expected price moves - the SV talks about the past price moves.
Shifting IV20days tells you how accurate the market was anticipating the moves for the upcoming period.
In the end for us ThetaPositive traders we want options to be overvalued or at least be accurate in their prediction of the future move. Too big a underestimating could lead to losses in our trade style.
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