Posted by on June 4, 2014

Sell in May and go away? You’re missing out!

Another of the old Wall St. adages I hear tossed about is “Traders sell in May and go away.” This means positive market movement in May typically hits a wall as traders sell out of their long, bullish positions, and their minds turn elsewhere as the weather improves.

They typically come back in expectation of a summer rally. However, this past May ran counter to that “old trader” wisdom, and traders who sold and left the markets in May really missed out on something. The market broke out to the upside of the tight range it had been trading, but it did so with so little volatility and fanfare many traders simply are not noticing. The S&P 500 index closed Monday, June 2nd at an all-time record high, 1924.97!

S&P 500

Graph Source:  OptionsHouse

Stealth bull markets can present some of the best trading opportunities for some basic option and stock strategies. If you’re not paying attention now you may kick yourself in 3 months.

People talk about how worried they are but the CBOE Volatility index (11.87) paints a much different picture. Some analysts call this out as investor complacency and warn of an upcoming correction in the market. But you may see it another way. Covered Calls and Cash Secured Puts may work very well in a market just like this. Slow (boring) appreciation of prices is the blueprint for success in these two strategies. One reason for entering these two strategies is getting paid to wait, which is working right now. You can get a full explanation of these 2 strategies from our archived webinar:

Options 101: The Covered Call
Options 101: The Cash-Secured Put

Don’t fall into the trap of thinking that nothing “exciting” is going on and look back and see another month like May with 2% gains in the index.

Also being a successful trader means being prepared. Be prepared for low volatility markets with strategies which pay you to wait, but also be aware that the quiet markets could end. There are two events on the immediate horizon which may cause some “excitement.” Later this week we get the employment monthly release which has typically been a big trading day, and next Monday, June 9th the Apple 7 for 1 stock split will occur.

Be prepared.

The above information is provided by OptionsHouse, LLC ("OptionsHouse") for informational and educational purposes only and is not intended as trading or investment advice or a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. You are solely responsible for your investment decisions. Commentary and opinions expressed are those of the author/speaker and not necessarily of OptionsHouse. Neither OptionsHouse nor any of its employees, officers, shareholders or affiliated companies guarantee the accuracy of or endorse the views or opinions of guest speakers or commentators. Projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature and are not guarantees of future results. Any examples used that discuss trading profits or losses may not take into account trading commissions or fees.

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