May 2019 Commentary

Posted at: May 10th - 3:01 PM

Monthly Option Alert

Alert Message

Per our monthly analysis, previous years have been incredibly kind to our members. In fact, May outperforms the strategy as a whole for every single metric we track: Trades, winners, winning history, and average return. There is but one blight on our trade record for previous years and that would be 2012 wherein our week fell right in the middle of a major market selloff that did not end until June 4th of that same year. Charts for the major indices for the last month look somewhat similar to those during the same time frame in 2012 with the notable exception of a slight recovery on Friday of last week. Additionally, there is a clear albeit subdued uptrend in the later half of most of the trading sessions this month (including today).

On the news front, more doom and gloom (no surprises there). Most of the talking heads are calling for Armageddon as a consequence of the reported failed trade deal with China and President Trump's threat to raise additional tariffs over the weekend. Financial outlets are suggesting this to be an "all out" trade war with China. Most analysts are completely downplaying the continued trade negotiations and overlooking the lag effect in new tariffs. Clever options traders might take note that this scare has only moderately been priced into long-term option chains (quite telling).

We find ourselves in an incredibly difficult spot this month and will need to adjust accordingly. We have been in this situation more times than I care to count over the 20 years of trading this strategy. Ultimately, there is only one option (pun intended) to move forward, we stick to the data and trade as it indicates. However, given the extreme volatility of the moment, let's mitigate some risk and take half positions this afternoon just prior to the close to protect ourselves just in case the talking heads have it right and we end up with another May 2012 on our hands.

Alerts will be out 15-20 minutes prior to the close.

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All options are buy to open, sell to close. Options follow the following format: Stock + Expiration Date + Option Type + Strike Price. Example QQQ201220C120 = QQQ 2020/12/20 Call $120.

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