Does Inventory Risk Change Based on the Option's Time to Expiration? ⎊ Path

Does Inventory Risk Change Based on the Option’s Time to Expiration?

Yes, inventory risk is dynamic and changes with time to expiration. Options with a longer time to expiration generally carry higher inventory risk because they have higher Vega (volatility risk) and the market maker's hedge needs to be maintained for a longer period.

As an option approaches expiration, Gamma and Theta increase, requiring more frequent and costly hedging, thus changing the nature of the risk.

Is Roll Risk Higher for Short-Dated or Long-Dated Contracts?

Explain Why Gamma Increases as an Option Approaches Expiration.

Define “Vega” and How It Differs from Theta in Weekly Options

What Is the Relationship between Theta and Gamma for Short-Dated ATM Options?

Explain the Inverse Relationship between Theta and Gamma

Does a Short-Dated Option Have Higher or Lower Execution Risk than a Long-Dated Option?

What Is the Relationship between Theta and Gamma near Expiration?

Does a Longer Time to Expiration Generally Result in a Lower or Higher Gamma?