Happy Friday. We wrapped up the week on a strong note, up about 0.8% today (shortly before the close when I filmed this), though still slightly lower on the week overall. Yesterday we talked about how heavy option selling pressure has kept prices compressed in some names, making certain wheel trades tougher. But there’s another force at work that shows up almost every Friday and it’s worth keeping in mind.
As we head into the weekend, the market effectively “takes out” Saturday and Sunday. By late Friday, options are often pricing as if it’s already Monday, which naturally pushes implied volatility lower. Next week adds another wrinkle with the Christmas holiday. The market is closed on the 25th and closes early on the 24th, and many large traders tend to step aside. That means models may start pricing multiple days ahead, making implied volatility appear lower than it actually is. It doesn’t mean risk disappears, it just means the numbers can look misleading. Keep that context in mind as you head into the shortened week.
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