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I am trying to calculate the implied volatility given an option price that is a few hours till expiry. The issue I am having is that I am not sure if it's better to use $T=\frac{1}{365}$ (case 1) or $T=\frac{1}{252}$ (case 2) for the daily increment. Then for the hour increment if an option that is 6 hours till expiry, if it's case 1, would we then use: $$T=\frac{1}{365}\frac{6}{24}$$

Or then if it's case 2:

$$T=\frac{1}{252}\frac{6}{7}$$ (If there is 7 hours of trading)

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  • $\begingroup$ I tend to use 1/365 (volatility never sleeps) as a simplification. Modelling weekends and overnight effects accurately is challenging. $\endgroup$
    – Frido
    Commented Aug 5 at 13:52
  • $\begingroup$ @Frido I was more-so asking about the intraday, 0DTE. Or are you saying that if 1/365 is 1-day and there's 7 hours per trading day, then if we remove the overnight affect and have 3 hours left of expiry, then T = 1/365 * 3/7, plug this into BS and remove the overnight $ decay? $\endgroup$
    – Xerium
    Commented Aug 5 at 23:45
  • $\begingroup$ If I use 1/365 per year then that means that I count weekends. Hence I'd say 1/365*(7/24). I am by no means claiming that this is standard. Indeed I know that for intraday there is a weighing mechanism people apply, so maybe you should try to search for some paper on this on the internet. $\endgroup$
    – Frido
    Commented Aug 6 at 5:06

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