I have a question about the effect of public holidays and weekends on option pricing. I have read a few blogs where the authors state that market makers factor in the weekend and public holidays by lowering the IV. This makes sense to me intuitively, because the option writer will be taking less risk if there are less trading days, and should therefore be compensated less ie. by being paid a lower IV.
1. Can anyone confirm that this is indeed how MM's handle holidays and weekends?
2. If so, when do the MM's tweak the IVs down? If today was Friday and the MM's were to tweak IV to factor in the weekend ahead, would they lower IVs at start of trading, midday, or end of day?