It’s bad enough fighting the crowds at the mall, but try shopping for option trades this time of year! Trading options can be a little trickier during the holiday season because of some unique seasonal anomalies.

First, it can be slower. Professional traders take time off. There are less market players, which means less business transacting. This has two seemingly contradictory implications. On the one hand, the market tends to have fewer big moves because, traders with an ax to grind are using it on the Christmas goose and not on knocking out 10,000 lots in the market. But, because there are fewer liquidity providers, the small moves that occur can be more erratic because there is less size on the bids and offers in both stocks and options.

Second, there is the fabled Santa Clause rally. Traders cite the Santa Clause rally whenever the market runs up this time of year. Do I believe in the Santa Clause rally? Hmmm… If I don’t, do I stop getting presents? Maybe it’s better to believe than not!

But lastly, and most importantly is the theta risk of having the market closed for two extra days. These are days in which options loose value from time decay, but there is no trading that might lead to potential profits–very bad for longs. We tend to see traders taking the day out early this time of year as options get cheaper faster as traders anticipate the holiday.

Have a safe (and, hopefully, profitable) holiday season.

Dan