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Should You Rebalance Before Every Weekend? The Data Has an Answer
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ticker lesson
Breakdown
0:00lesson
Rebalancing on Fridays — market gaps on Mondays
- Study on Friday rebalancing and Monday market gaps
- Most people don't trade on weekends
- Monday opens can affect Friday positions
- 10 years of SPY data analyzed
- Standard deviation as 0.95% gap measure
2:14lesson
Monday open up frequency and volatility
- 56.25% of weeks open up on Monday
- Positive gaps dominate
- Outliers like 2020 show volatility
- Most volatility occurs on Tuesday
- Market reacts to Monday news on Tuesday
3:51lesson
Yearly gap analysis and standard deviations
- 2016 had 78% of Mondays open up
- 2020 and 2022 below 10-year average
- 2025 and 2026 show lower open-up frequency
- Standard deviation as 0.95% gap measure
- 10-year average of 6.7% gaps below one standard deviation
6:24lesson
Gap magnitude and impact on trading strategies
- 3% of weeks gap below one standard deviation
- 2026 has 3% of weeks gapped down
- Strangle strategies face -8% P&L on -2% gaps
- Most gaps between -1% and +1%
- Rare but impactful -2% gaps
8:46lesson
Market recentering and trading implications
- Market recentering observed in 2005-2006
- 2026 has 42% of Mondays open up
- 2025 had 63% of Mondays open up
- Average weekend gap in 2026 is 0.1%
- Volatility impacts strangle strategies
11:07lesson
Strangle strategy performance and risk management
- Average return on buying power +1.3% for positive gaps
- Negative gaps average -0.5% return
- Worst case: -8% P&L on -2% gaps
- Most gaps between -1% and +1%
- Rare but impactful -2% gaps
13:25lesson
Trading on Fridays and managing Monday gaps
- 56% of Mondays open up over 10 years
- 2025 had 13% of weeks gap below one standard deviation
- 2026 has 58% of Mondays open down
- Small gaps (0.5-1%) don't hurt much
- Large gaps (>2%) can hurt -8% P&L
15:41lesson
Risk mitigation for strangle traders
- Recenter short strikes and adjust size
- Minimize size on Friday to avoid 2% down gaps
- Track gap magnitude, not just direction
- Strangle strategies face significant risk on large gaps
- Volatility impacts buying power returns
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