August 17, 2017

Strategies Excel During “Sell in May”…Here’s Why…

April expiration has finally passed.

And it was a good one for our options strategies.

All three strategies reaped profits. Again, the goal is to produce as much income as possible each and every expiration cycle. But, keeping risk-defined is the key to any successful long-term approach, so expectations should always be reasonable. No speculation…just high-probability strategies that hit lots of singles and doubles. The occasional home run happens, but it’s an anomaly.

Anyway…the expiration cycle witnessed a wide-range of short-term sentiment. Mid-way through the cycle most of the major indices were hitting all-time highs. But, as we have all witnessed over the past several week the bulls reign is over. Now all of the major indices are pushing below their 50-day moving averages and the timing couldn’t be perfect.

Oftentimes, the initial move below the 50-day is extended and the chance of history repeating itself looks good. Sell in May is here again and as we have seen, time and time again, the period is historically very weak.

May is historically one of the weaker performing months. It is something to consider over the intermediate-term in this already overextended market. I looked at the historical average return of the S&P on a monthly basis over the last 60 years to see if actually backed up typical range-bound summer months also known as the “summer doldrums”.

  • Jan. –     1.4%
  • Feb. – (-0.2%)
  • Mar. –   1.0%
  • Apr. –    1.3%
  • May –    0.3%
  • Jun. –    0.2%
  • Jul. –     0.9%
  • Aug. –    0.0%
  • Sep. –   (-0.6%)
  • Oct. –     0.9%
  • Nov. –   1.8%
  • Dec. –    1.7%

The Stock Trader’s Almanac states that a $10,000 investment compounded to $544,323 during the November-April period over the last 56 years compared to a $272 loss for May-October. I think that sums up the significance of the historical period known as the “Summer Doldrums”.

Keep this in mind as we move into the summer months. Corrections happen. Flat periods happen. The market can’t continue to advance in this manner without corrections and lengthy consolidation periods. This is the nature of the market. Consider learning alternative investment strategies as a way to diversify your current portfolio so that you are better equipped in any market environment, bullish bearish or neutral.

So, the question is, how can we make money during the historically flat period from May-October. Well, look no further than an Iron Condor Strategy. An iron condor performs best during a range-bound environment. It never hurts to learn an alternative investment strategy to see if it meets your risk profile and more importantly, if it can help you achieve a higher potential return in your overall portfolio. The strategy is not a “get rich quick” strategy and it has some obvious risks like any other leveraged investment strategy.

However, risks can be reduced in many ways, position sizing, defined stop-loss, etc. But, another way is to limit short iron condor positions to particular expiration cycles. Historically, some are weaker than others and the summer doldrums are typically a period that is attractive for this type of strategy. If you think that history will repeat itself this year then you might want to investigate an Iron Condor Strategy that fits your risk profile.

For a limited time a subscription to my High-Probability, Mean-Reversion newsletter includes all three of my options strategies: High-Probability, Mean-Reversion Options Selling Strategy, Theta Driver strategy and my High-Probability, Mean-Reversion Directional Strategy. The combination of the three strategies allow you take advantage of every market scenario.

Why limit yourself to one strategy?

If you are a believer in a statistical approach towards investing please do not hesitate to try my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

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  • Peter Evanson

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