Time To Collect Some Income

Who would have thought two months ago that the S&P 500 would be less than 2% away from an all-time high? Since then the market has moved up 16% in virtually a straight line. That situation has caused market participants to scramble and reposition their books by covering short positions and going long in equities.

Quarterly earnings season thus far has caused some analysts to move up their full-year estimates. Credit concerns for investors are taking a backseat and China looks like it is getting its act together. It all seems rosy but we believe the easy part is done and the hard part is ahead of us. The tailwinds from technical factors are beginning to fade. To be fair, earnings are beating low expectations. While the market could touch all-time highs, for it to sustain and continue to make new highs, there needs to be overwhelmingly good news. In the muddle-along U.S. economy, we just don’t see it. In fact, we see the markets entering into a historically volatile season with highly contentious presidential party conventions ahead.

What this market environment of sideways and range-bound action does is allow for us to get paid and let time decay work in our favor. The aforementioned complacency is also being seen in the options market as calls are being bid higher to create an opportunity to earn extra premium.

When you receive this alert, sell to open the SPDR S&P 500 ETF June $215 calls (SPY160617C00215000) that last traded at $1.59 and that expire on June 17. Let’s take the cash and let time do the heavy lifting.

We currently are watching closely our positions in the oil sector. With the conclusion of the meeting of representatives of oil-producing countries in Doha, Qatar, we still expect to see volatility in the oil markets. Keep an eye open for alerts as we opportunistically seek to sell each side of the trade into weakness or strength as the market dictates. Overall, we still see the potential for market volatility ahead and believe it will provide us with good exit points for our short-side options and exchange-traded funds (ETFs). This year is ripe to prove the old adage “sell in May and go away” to be correct once again.