Stock Seasonality Example by Market Chameleon

  • What does seasonality mean for a stock?

    Stock seasonality refers to stock price trends that occur within distinguishable timeframes. Traders use seasonality to identify historical patterns in price fluctuations and then use that information as guidance for trading.
  • What is an example of seasonality?

    We can see seasonal price patterns in different parts of the economy. For instance, gas prices tend to rise during holiday driving season. Also, air plane tickets to Florida rise on the holidays, special events or winter season. This is caused by the general demand going up or down during certain periods of time throughout the year and can be referred to as price seasonality.
  • Why do stocks show seasonal price patterns?

    There are various reasons why a stock can experience a seasonal price pattern. For instance,
    • At a certain time of the year more mutual funds are buying than selling
    • More money is increased into pensions due to wage increases from salary and wages
    • More products are being bought as gifts during Christmas so a stock might have better earnings (the pre-holiday effect)
    • Maybe investors want to close out positions before the close of year for tax purposes
    • Oil prices may go up during the summer months when people are traveling more for vacations
  • How do you find seasonality in stocks?

    There are several ways to search for seasonality in stock prices and various time periods to analyze. Some of the most well known and discussed seasonal trends include:
    • The Janurary Effect
    • End of Quarter Effect
    • Pre-Holiday Effect (Santa Claus Rally)
    • Sell in May and Go Away (Until Halloween)
    • Turn of Quarter
    • The September Effect

    However, for options traders, seasonality can be examined through time intervals measured up to the options expiration date. Take a look at the following example for a stock during a specific time period.

    Lets say today is February 14th and we want to make a short term trade in the options market for Visa (V). We could look at options that expire on February 28th. The common seasonal trends that we discussed above won't help us gain any kind of edge for this holding period. But, we can still analyze this specific time period (Feb 14th to Feb 28th) to see if there has been any historical patterns over previous years. Looking at the screenshot below, we can see that between the Feb 14th and Feb 28th has some consistent gains; up 88% of the time with an average return of 1.96%. But remember, since history does not guarantee a future result, we use it as guidance in the absence of information to the contrary. Of course, in a real life situation you would want a system that would first alert you to the stocks with the best seasonal trends for the upcoming expiration. Then, as an options trader, you could use that information to have the system find the best options strategy that meets your risk threshold while maximizing your profit potential.
    Stock Seasonality During Specific Time Period
  • Where can I find seasonality for a stock?

    Go to the Historical Price Distribution Page Then select "Seasonality" from the Time Period drop down list (see screenshot below).
    Where to find stock seasonality step 1
    After you select the seasonality period (or keep the default), then click the Get Results button (see screenshot below).
    Where to find stock seasonality step 2
    Then simply scroll down to see the results (see screenshot below).
    Where to find stock seasonality step 3
  • Watch this video to find out more about stock seasonality