How to Trade 'Em During the Festive Season

Volume in both stocks and options is running at record levels on this final expiration of the year and producing solid gains. But I can't too bullish until the S&P 500 closes above the important 1490 resistance level.

This rally is clipping the VIX a bit more as it has already eased. But remember that some of the decline has to do with the anticipation that news and trading will be very light for next two weeks so traders are essentially dialing their clocks forward a bit to account for a "faster" rate of time decay for the remainder of the year.

For me, I know that even though I will be working, it will mostly be writing and I don't expect to do much trading in my Options Alerts portfolio, particularly when it comes to initiating new positions. So use this final expiration of the year to allow the Options Alert Model Portfolio a victory lap -- the model portfolio was up over 80% year to date compared to the S&P 500, which is up 4.24% for the same period.

The portfolio came in long some Research in Motion (RIMM - commentary - Cramer's Take) call options, which I sold on the opening. I don't plan on resting on my laurels and while I will continue to look for new trades, and still have seven open positions, I won't look to force trades and will probably spend more time writing about concepts and addressing general questions for remainder of the year.

Unless you're a market maker, expiration day is not the best day to trading options. Even though penny pricing has taken a lot of the edge away from professionals it is today they try to feast on retail traders that need to close, roll or generally adjust as the December options expiration. Me? I'm inviting some of my co-workers to take break from eating at our desks and we are going out for expiration burgers. Anyone that works downtown NY and knows where the Irish Punt is welcome to come on by around noon.

OK, that's seems to an awful lot about me. What are the really important people doing?

Topping the most active option list is the Financial Select Spyder (XLF - commentary - Cramer's Take) in which over 60,000 contracts have traded. What is notable is that the most active strike is the March $32 call, which has traded 32,000 contracts, which is more than double the strike's prior open interest.

Most of the volume occurred in large 5,000 to 10,000 contact blocks suggesting that institutional investors are placing new bullish bets that, for what seems to be the fifth time, the worst is over and that what is becoming a steady stream of access to fresh capital, whether it's fresh investments (I just can't say cash infusion) or the Fed's TAF loan auction, will finally allow the sector to stabilize.

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Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.

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