3 Valuable Tips for Trading and Investing around Holidays

By TradeSmith Editorial Staff

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With Juneteenth, the number of stock market holidays now sits at 10.

Some of them, like Christmas, often come with seasonal trends like the “Santa Claus Rally.”

While I’ll leave the analysis behind seasonal trends up to the data crunchers, markets do change the way they operate around holidays.

And while you may not need to make any major adjustments to how you normally trade and invest with holiday schedules, being aware of the differences can help you avoid making simple errors that can cost you money.

Let’s start with one of the most well-known phenomena.

Trading Volume Gets Lighter

Wall Street traders are just like anyone else. When vacation time rolls around, they get antsy to head out the door.

Typically, the Friday before a holiday weekend, trading volume gets lighter in the market.

Institutional participants have already made their strategic decisions and aren’t likely to take strong stances before a long weekend.

You can see how the SPDR S&P 500 ETF Trust (SPY) traded around different holidays, and I marked up this daily chart to show where Thanksgiving and Christmas occurred.

At the top, you’ll see the daily price chart for the SPY. At the bottom, the red histogram shows the volume of shares traded.

Volume slowed down around Thanksgiving and slowed again at Christmastime.

This isn’t something that occurs 100% of the time, but the majority of the time, the trading volume is lighter.

From a trading perspective, it tends to create price movements that come up short of key technical levels.

That’s why many of my friends who like to day trade take the day off.

Options Expirations Can Change

Those who like to trade options need to be aware of the nuances that come with holidays.

Monthly options typically expire on the third Friday of the month.

However, if there is a holiday on that Friday, the options will expire on Thursday, the day before.

And here’s something most people don’t realize.

Option decay occurs every day until expiration, even days the market isn’t open.

If I sell an option, my goal is for that option’s price to go to zero by expiration.

That’s a strategy that can be used for expirations that lie after long holiday weekends because the price of the option declines every day, including the holiday.

However, always make sure you are aware of the correct expiration date.

The last thing you want to do is come back after a long holiday weekend and find you own 100 shares of Tesla Inc. (TSLA) that you hadn’t been expecting.

Bonds and Futures Have Different Schedules

For those of you who trade futures or bonds, there is an entirely different schedule for holiday trading.

There are several times during the year when the bond market will remain open for part of the day with an early close at 2:00 p.m. Eastern, such as the Friday before July 4 this year.

Additionally, trading futures contracts will often have a different schedule.

To make sure you have all the appropriate information, here are some links to the various trading schedules for the holidays:

Final Thoughts

The vast majority of the time, holidays come and go with little fanfare for the markets.

Nonetheless, you always want to be prepared and minimize any risk or the chance of mistakes.

Do you have any special strategies or rules of thumb for trading around holidays?

Email me and let me know your stories. While I can’t respond to everyone, I promise to read every email.