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If you are selling options to generate income, Friday afternoon often brings a difficult decision: do you close the position now to lock in profits, or do you hold through the weekend to capture those two extra days of time decay? Is there even theta decay on the weekends in the first place?

This is one of the most debated topics in options trading. Technically, time passes every single day, so the math suggests your option should lose value on Saturday and Sunday. However, the market doesn’t always reward you for holding.

In this guide, we will break down the mechanics of theta decay on weekends, explain why the “weekend effect” isn’t always free money, and I will share how I’ve navigated this with my own Tesla (TSLA) positions over the last decade. If you want a more in depth history of my Tesla covered call strategy you can read my other much longer article

The Theory: How Theta Decay Works 24/7

Theta (one of the “Greeks”) measures the rate at which an option loses value as time passes. Since options are wasting assets with a fixed expiration date, they lose a small amount of value every second of every day including when the market is closed.

Theoretically, if an option has a Theta of -0.05, it should lose $5 of value per day EVERY DAY. If you sell an option on Friday at 4:00 PM and buy it back Monday at 9:30 AM, you might expect to pocket two days’ worth of decay.

This is the “textbook” view of theta decay on weekends, but as any seasoned trader knows, the market makers are rarely that generous.

The same does apply with holidays, theta decays on federal holidays.

Does Theta Decay on Weekends Actually Lower Premiums?

The short answer is yes, but it is often “priced in” before you ever reach Saturday morning.

Market makers and sophisticated algorithms know that the market will be closed for two days. They are not in the business of handing out free premium to retail traders simply for holding a position over a quiet weekend.

Often, you will see implied volatility (IV) drop slightly on Friday afternoon, effectively “front-loading” the weekend decay. By the time the closing bell rings on Friday, the option is often already trading at a price that reflects Monday morning’s theoretical value (assuming no major news breaks).

Spoiler Alert: Major News Breaks on Weekends Too

As a decade long Tesla investor, I can confirm that major news does often break over the weekend. I have had many Elon tweets threaten to blow up my covered call strategy. To give one personal anecdote, in 2019 the Cybertruck was unveiled. We all remember the window breaking as the Chief Designer through a metal ball at the window.

As all of us investors remember, the stock was down sharply the following day. I was short call options covered by my shares so I had a somewhat neutral position. A big move either way would be painful. The day after was a Friday, I watched my shares bleed so much value that I got emotional. The root of any bad trade is being emotional. I rolled down my calls to a lower strike receiving more premium but also meaning I was exposed to good news. Unfortunately over the weekend, Elon does what Elon does and he tweeted.

Thursday: Unveil, Metal Ball, Disaster, Internet Memes About the Design

Friday: Stock down massively

Saturday: Elon Tweets “146k Cybertruck orders so far, with 42% choosing dual, 41% tri & 17% single motor“

Sunday: “200k“

Monday: Stock up because of Elon’s tweets, now my short options were in the money…. thanks Elon

I will save the topic of how I got out of this trade for another day. The moral of the story is, don’t expect the momentum going into the weekend to be the same momentum coming out. Things change and holding over the weekend to get your theta decay if you are short weeklies is not worth the liquidity you give up.

Risks of Chasing Theta Decay on Weekends

While the allure of passive decay is strong, holding over the weekend introduces “gap risk.” Since trades can’t be placed on Saturday or Sunday, you are exposed to breaking news during those 48 hours.

If a major event occurs like geopolitical instability, a surprise earnings leak, or a CEO scandal (or tweet), the stock could gap heavily in one direction on Monday morning. In that scenario, the volatility spike will completely erase any pennies you gained from theta decay over the weekend.

Another problem is the lack of liquidity, most brokerages (including Charles Schwab which I use) dont allow you to trade options on the weekend so if you are holding an option and you want to change your position, you are powerless until the following Monday. If a rumor starts swirling and you want to get out in front of it by exiting a position before it really picks up steam, you better hope that morning bell comes early or the rumor mill slows down.

My Personal Opinion

For the past decade, I have used a consistent covered call strategy to generate income on my long-term Tesla holdings. The goal isn’t just to capture decay; it’s to generate income while managing the risk of having an outsized long position on a single holding.

While it’s nice to collect those extra days of theta decay over the weekend, I’ve personally not found it worthwhile. At the end of the day, you need to do what makes you comfortable. If I worry about a tweet on Saturday while I watch football then it’s not worth the extra basis points.

Conclusion

Understanding theta decay on weekends is vital for optimizing your exits and entries. While the math says decay happens daily, the market pricing mechanism often discounts that value by Friday afternoon.

Don’t hold a position over the weekend solely for the decay. Hold it because your conviction in the trade remains high and the premium justifies the risk of a Monday morning gap.

Written by Hayden