With the holidays approaching, the Santa Claus rally on Wall Street is anticipated. This phenomenon typically sees stocks perform well during the last five trading days of December and the first two trading days of January. While historically successful, recent years have seen declines. A bull put spread strategy can capitalize on this trend with defined risk.

A bull put spread involves selling a higher-strike put and buying a lower-strike put on the same asset with the same expiration date. This strategy is used in neutral or moderately bullish markets, aiming for the stock to trade above the short strike price at expiration. The SPDR S&P 500 ETF Trust (SPY) is a popular choice for this trade due to its liquidity and market tracking ability.

For those looking to participate in the Santa Claus rally through options trading, choosing bull put spreads expiring close to the second trading day of January 2026 could be beneficial. By selecting trades with lower strike prices, investors can mitigate risk and potentially profit from moderate price increases. One example involves selling a 667-650-strike bull put on SPY with a net credit of $1.11 per share and a 14% loss probability.

While the Santa Claus rally has historically shown positive results, it is essential to monitor trades carefully and adjust as needed. Utilizing bull put spreads during this period can offer opportunities for profit with defined risk. Stay informed and attentive to market movements to make strategic decisions in options trading.

Read more at Barchart: The Safest Way to Bet on the Santa Claus Rally