Effect of Window Dressing on Option Trading

Options Trading Topic: Seasonality of Trading

Dear Options Trading FAQ:

Trading options on the OEX is my life. I saw on TV today stuff about the rally being due to the "strong" part of the month effect. Whatzzat? How does it impact my option trading strategy?

Trading Options from TV Land

Dear Whozzat Option Trader?

The definitive source for studies on seasonality effects is Yale Hirsh. In addition to his market letter, he publishes the yearly Stock Trader's Almanac. It has exhaustive studies of historical performance tallied with regard to time of day, day of week, days of the month, periods of the year etc. Fascinating stuff. You should be aware of the trends and the potential impact on your option trading. If only because it has a strong following among stock traders.

Anyway his work shows that the strongest part of the month is the last two trading days and the first four of the new month. This is the "end of the month" or "window dressing" effect. Everyone knows about it (supposedly) but many forget to check their calenders before putting on a bearish position. Yale Hirsch's organization can be reached at 201 767 4100. Sometimes they can be persuaded to sell old copies (last year or this year) of the almanac for little money. A must read for traders.

Check out these Stock Trader's Almanac sample pages

Good luck and trade well! Remember, an educated options trader is the best options trader. Browse these books books on trading options.

Tags: Options Trading, Options Strategy, Options Trading Seasonality

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