The holiday season can be so seductive for a number of reasons.
And at this time of the year, many people start phoning it.
It seems like such a great time to trade.
The wife is out shopping, the kids are still in school.
You fire up the computer, log into your trading account and it’s off to the races.
But.. you could be making a huge mistake?
If you can understand the risks of trading this time of the year, you will be fine.
First off, when you are taking your vacation days, chances are institutional traders are as well.
That means the trading desks are staffed with their junior guys.
And that has a direct impact on liquidity.
And when liquidity is affected, the market makers are much less inclined to tighten up the bid-ask spreads.
With the big guys out of the office, the younger traders are less likely to put on risk.
All you need to do is to take a look at at-the-money options.
Normally you would have a $.10 spread, but during the holidays it is more likely to be $.20 or worse.
As spread width increases, and sizes decrease, the odds are no longer in your favor.
The costs to enter a trade get higher, and your ability to adjust a trade gets more expensive.
Should you totally avoid trading? Of course not.
You just need to do your homework ahead of time.
There will be many great opportunities to make quick holiday cash.
Know your entry and exit prices before you enter the trades and you should be fine.
Also, you need to know that this year’s FOMC meeting is on December 12 and 13th.
Once the fed releases their interest rate decision, the market will likely get thin and choppy straight to the end of the year.
Just because the markets are open, you don’t necessarily need to trade them.
I use this time of the year for reflection and to energize myself for the coming onslaught of a new year.
Either way – good luck out there!
— The Option Specialist