This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Sell In May? No. Hedge Once Again

The second hasn't fully impacted upon the economy yet, but you can expect the ACA to thwack payrolls by the fourth quarter of this year. However, I don't imagine the impact of the ACA will be as incendiary as many claim -- not because the ACA isn't an unmitigated weapon of mass financial destruction, but I forecast the ACA becomes significantly watered down from its current form. The ACA is so ruinous in its current form that even Congress is waking up to the reality of the negative impact.

The third key driver is the cost of energy and, in particular, the price of oil. I have many articles about why oil will continue to fall in price, including this one "Forget About Fracking, the Gulf May Lead Oil Lower."

Falling energy prices is a bullish catalyst for the economy and the market should not be discounted. It's a tremendously big deal on par with any other catalyst in the market.

Taken as a whole, with the chart and the fundamentals, I think the odds favor a retracement in the S&P 500, but instead of shorting the market, the best course of action is to remove some gains off the table and prepare to buy the shares back on a dip.

One way to take gains off the table is through the use of options. For example, if you currently have 1,000 shares of SPY, maybe sell covered calls on the shares you would otherwise sell. By selling the June $150 strike calls that are deep in the money, you have about an 85% chance of the shares being called away.

You can acquire, at the time of writing, about $10.20 in premium, for a sale price including premium of $160.20, almost a full dollar above the current market price of $159.38. If the market falls by greater than expected and the SPY is trading below $150, you gain $10.20 in time premium that lowers your cost basis and risk.

At the option expiration date, you can reassess the market and decide if you want to cut back further or if it's time to add on more exposure. You will have greater clarity of what to expect from the ACA and if the Federal Reserve is slowing down the printing press.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
SPY $199.28 0.00%
AAPL $113.29 0.00%
FB $91.01 0.00%
GOOG $630.38 0.00%
TSLA $248.48 0.00%

Markets

Chart of I:DJI
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 +1.21 0.06%
NASDAQ 4,828.3250 +15.6170 0.32%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs