As we move into the holiday season, the market is starting to show its cards with record-high call option volumes driving sentiment into “extreme greed” territory.
You’d think that would mean a green light for bulls — but not so fast…
There are layers here that any savvy trader needs to read carefully, especially with year-end volatility playing a crucial role.
Historically, November, December and January are bullish for the stock market — no question there. Call option volumes right now are sky-high, which gives the impression of pure enthusiasm.
But it’s worth remembering that low volume can quickly turn into lower volatility as we get into the heart of holiday trading. During these stretches, we usually see one of two scenarios: Either the market continues its trend in a low-volume melt-up, or we get a “nobody’s watching” move where price action surprises everyone.
And I don’t need to tell you, the latter can catch even experienced traders off guard.
The interesting part here is how the option sentiment could play into the holiday structure. When we’re seeing outsized call volumes like we did in July, the market often peaks and then tumbles into a rough correction.
Remember what happened in mid-July this year — the top came and by early August, we saw a steep correction that put traders through the wringer. When option sentiment is skewed toward greed, a correction isn’t a matter of if but when.
This pattern could easily repeat as we head into December, especially with the Fed and inflation data likely influencing the market before year-end.
Another piece to watch closely is how much of the market’s upside is baked in. The end-of-year rally might still have room to run, but we have to keep in mind that any rate cuts expected for 2025 have already been priced in by much of the market.
If the Fed decides to pause instead of cutting rates in December, we could see a hard pullback — a reality check for those expecting this melt-up to continue into the new year.
From a trading standpoint, I’m keeping a balanced approach here. I’ll look to keep hedges in place into Q1 and build small defensive positions every 30 to 60 days as a layer of “just in case” protection.
It’s a necessary precaution, given the current sentiment and these historical precedents.
Holiday trading often puts us on a path of least resistance — but it can turn on a dime. With low volume in play, the momentum we see now could carry forward, or it could pivot quickly if traders get spooked.
For now, the call volume might be in charge, but I’ll keep the hedges in place and be ready to move if this greed finally meets its match.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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