Let's talk about Santa’s Naughty and Nice list for this Christmas.
And no, I'm not talking about your Uncle Frank who brings deviled eggs to every family dinner, or that one cousin who still owes you 50 bucks.
I'm talking about stocks. The stocks handing out profits like candy canes – and the ones you want to avoid like a regifted fruitcake.
The stocks that are showing every sign of being massive winners next year, and the ones you need to sell right away.
The Naughty List
These are the stocks where options prices (premiums) are inflated and way above average. So, if you're trading calls or puts on these names, be careful. Expensive options can lose money even when you're right, because you’re paying too much upfront.
I scanned over 4,000 stocks in the market and looked at how expensive their options are now compared to where they've been all year – the highs, lows, and everything in between. And these are the top offenders (that is, the most expensive ones to trade right now):
Oracle's a heavyweight in enterprise software and cloud services, and it's been a solid performer this year.
But when I pulled up the options, the pricing was off the charts. Implied volatility jumped from around 24 earlier in the year to 64 today. With earnings coming up in two days, the market's jacking up premiums. If you’re thinking about buying calls here, I'd say pump the brakes. This one's better suited for selling premium, not buying it.
lululemon athletica Inc. (NASDAQ:LULU)
Lululemon's built a loyal following with strong retail performance. It's no stranger to sharp moves.
But when I ran my scan, LULU showed up with options priced well above their norm. They're just too expensive to justify a long call or put. Even if you get the direction right, you’re paying so much in premium that the move has to be perfect just to break even.
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Paychex is a steady name in payroll and HR services. Nothing flashy, but consistent.
The problem is, the options are anything but consistent. They're inflated well above the stock's normal range. Like Oracle, this is a case where being directionally right might not be enough. Overpaying for time premium stacks the odds against you from the start.
Ciena builds the networking gear that powers telecoms and data centers. It's had some solid swings this year.
But even with movement on the chart, the options are overpriced. CIEN showed up near the top of my “too expensive” list, and that's a red flag for anyone looking to buy calls or puts. The setup might look good, but the math doesn't work when the premiums are this high.
FactSet Research Systems Inc. (NYSE:FDS)
FactSet serves the financial world with data and analytics. Strong business, strong margins, and a solid chart lately.
But just like the others on this list, the options are trading rich. The premiums have climbed faster than the stock itself, and that throws off the risk-reward. If I were to trade this one, I'd lean toward the seller side of the trade, not the buyer.
The Nice List: Cheap Options Ready for Gifting
Now these are the names I like to see. All five showed up with options trading at or near the lowest levels we've seen all year. That gives me room to actually buy time premium without overpaying.
Uber Technologies Inc. NYSE:(UBER)
Uber's had a strong few months, bouncing back from earlier lows and starting to catch some upside momentum.
What caught my eye here was how cheap the options have become. Implied volatility dropped from nearly 80 back in April to about 30 now. With no earnings for the next 58 days, that premium has room to stay low. If you're bullish on Uber into year-end, this one makes a lot of sense as a buyer's play.
RBRK isn't a flashy stock, but it's consistent. That can be a great thing when it shows up with a deal on options.
This name popped up at the top of my Nice List. It's trading at the absolute bottom of its implied volatility range for the year, which means the options are about as cheap as they get. That opens the door for call buying if the pattern supports it.
Ttempus AI is a healthcare software and AI name. Not one you hear about often, though it’s been gaining popularity as an under the radar AI trade, but it came up strong in my scan.
Just like RBRK, it's sitting at the lowest option premium levels of the year. If we see any kind of move here, buying premium could be a smart way to catch it.
Ross Stores Inc. (NASDAQ:ROST)
Ross is one of those off-price retailers that tends to hold up well, especially heading into holiday season.
What stood out here is the options pricing. When I see a stock where the high and low volatility levels are equal in my scan, that tells me we've hit a new low—and that's exactly what's happening with Ross. If there's any bullish setup forming, the timing looks great for long calls.
Ventas is a real estate investment trust (REIT) that focuses on healthcare and senior living. It tends to fly under the radar.
But the options market caught my attention. Premiums have dropped to near year-lows, making it one of the more attractive REIT setups for option buyers. If a catalyst shows up, this could turn into a quiet winner.
What This Means for Your Next Trade
Volatility isn't just a metric, it's a signal. And it can tell you what to buy, when to buy it – or when the price tag is simply too high.
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