Sell in May and Go Away


Yo Pit Crazies!


“Sell in May and go away.”


The old saw still delivers as the S&P 500 (Ticker: SPX) has delivered ZERO performance in 23 days.



A lot has happened in those three weeks-plus … and not much of it has been good for stocks.


      • Bitcoin was cut in half
      • Jobs numbers were down
      • Inflation reared its ugly head

On the plus side, most COVID restrictions are being rolled back. My guess is that stocks were expecting that as states that opened earlier have been doing OK. (Just coming out of COVID  is NOT enough to propel stocks higher now. That happened in the run from 3,200-4,200 in SPX.)


So is it time for gravity to take hold of stock prices — or does the ship keep rising on a sea of Fed liquidity?


Of course, there is a trade for that — but I want to break down the trading approach first.


The hint is what has the market volatility been doing over that same time? It might surprise you.

On This Condition 


The chart below is for the iPath Series B S&P short term VIX futures ETN (Ticker: VXX)


VXX owns VIX futures and is the easiest proxy for what volatility is doing in the SPX.


If you guessed vol was down for May, you would be wrong. flatter market should generate lower volatility, but so far that is not the case.


The only real downtick was two weeks ago and I exited all the short VIX positions in the Volatility Trading Club at that time to close out a nice cycle. 

May performance VXX performance: One-day candles


So what we have is a market that isn’t going anywhere and volatility that is still at pretty high prices.


As a professional trader, I’m well equipped to set up trades to take advantage of this “condition” — and to help you do so, as well. (Remember: the condition is the volatility present in the current market and how options are priced in response to that price action.)


With higher volatility and the upside taken out of play in the short term (note my reasons for that above), it means I’m going to aim my SPX positions downward.


I’m looking to own SPX put butterflies or put calendars, and will set up the top end just to break even. The upside hedge will be light or just enough to ride out a snap rally intraday.


Also, note the intraday candles for SPX are very big relative to close-to-close levels. Intraday is a good time to exit positions, simply because that is when they are moving.


THE LESSON: Setting up a trade idea means looking at the condition in the market prior to entry and then shaping details around that. We will cover this in the Pro Chat and Trading Legion this week.


The Rundown


Pro Trading Room:
This is Option Pit’s live access to Mark and myself during trading hours. Our Pro students post trade ideas with Mark and me during the entire trading session. 


Below is an Edge Hunter snapshot from one of our Pro Trading Roomies. Note the strikes in the third column from the left as the fly aims downward 


Edge Hunter prices the current market conditions and turns those into actionable trade ideas. The EH butterfly sheet looks for butterflies that have volatility edge and light up (green here) when the edge is in the trader’s favor.


The topic of our post-close Pro group mentoring session Monday at 4 p.m. will be hedging and butterflies.


If you have questions, or would like to learn more, give our customer care team a call at (888) 872-3301 Monday-Friday between 9 a.m.-5 p.m. EST. Or reach them by email at

Trading Legion:
The Trading Legion is an intermediate-level education and a long strangle trading vehicle. The goal is to teach students the best times to buy options.


I will focus on trading a “one-side” strategy this week in which I want one direction to deliver higher returns, say 50%, and the other direction to remain flat. If the conditions are right, I can put these trades on for flat-to-positive theta.


The Power Income Portfolio:
Frank Gregory and I run a portfolio approach to trading options with stocks that have good long-term prospects based on Frank’s K-Street knowledge and my options expertise. We are aiming for positive theta trades and using that income to buy calls is the big growth opportunity.


Here’s the latest …

      • Ford (Ticker: F) is off to the races as everyone must have read Frank’s post. The F June 18/ July 02  13-/11-strike call diagonal spread was $1.30 when I entered and is $1.70 now for a 33% gain. Our plan is to keep rolling this out and aim for a 100% return.
      • Well, the four oddball TPI Composites (Ticker: TPIC) June 18 50-strike calls for $1 ended up OK, but the total lack of liquidity got me nervous — so we closed two calls at $1.50 and two at $1.75 for a 65% total return. This is a great stock to revisit on pullbacks.
      • General Electric (GE) is a play on green energy. We own the GE June 4 14-strike calls for a $.16 credit. That is a 5% return to own the calls outright. The play in GE is just selling 13 puts on pullbacks until we see a breakout.
      • The Vale S.A. (Ticker: VALE) position is down a bit in the five VALE June 18 22-strike calls and 20-strike puts we own for $1.60. We have sold three of the five puts at $.50 and am really just waiting here. We might buy some stock against the puts (200 shares) and see if things bounce, but we’ll wait for under $20 for that. That would create a “married put.” Right now the commodity play that was burning up has slowed.
      • We own four Taiwan Semiconductor (Ticker: TSM) June 18 120-strike calls for $3.10 and one TSM June 18 100-strike put for 1.95. We’ve taken in $470 against them via TSM calls we sold and QQQ put spreads we closed. The stock is so volatile it might have a hard time getting back to even on the calls, which is where we sit.
      • Palantir (Ticker: PLTR) is $.50 away from break-even and at this point I want to ride the stock I own (200 shares) and the four PLTR June 18 17-strike puts. If we get to around $24, which is where PLTR was prior to earnings, we will have a 10% return overall. 

Power Moves Portfolio Starting Lineup
The portfolio’s current open positions:


Volatility Edge/Volatility Trading Club:

The Option Pit VIX Light is still yellow. Volatility, As I wrote above, is still very bouncy, so the yellow light will amarillo.


In Volatility Edge, June VIX puts and short-term VXX call spreads. VE members can be on the lookout for more hedged strategies on Monday at noon EST.


VTC Trade No. 246 is my only live position right now.


      • I own the VIX June 16 30/45/60 call butterflies and Jun 16 20 puts. This position is up around 10% and still waiting for a bit more move.


Remember, a lot of vol strategies I use are market neutral. That means whether SPX or VIX go up or down, the positions still make money. This is a technique you can learn in the Volatility Trading Club and Volatility Edge!


Robinhood Trader:
Option Pit CEO Mark Sebastian uses the Robinhood Radar to find order flow in active names.


Look for ways to use the Gamma Radar to hedge this week in Thursday’s Turbo Trades session with me and Mark at 3 p.m. EST. (T

      • Mark and Licia teamed up on some AT&T (Ticker: T) last week …

        • Buy to open eight T June 11 29.5-strike calls. Pay $.60 maximum $0.655/14/21 and this is flying around 40% gains at this point.

Like what you're seeing? Have more questions? Drop a comment below!


To Your Trading Success,



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