In my humble opinion, the stock market is in bad shape. Most all economic news is bad news. It is possible that we are currently in a recession, and if not, we will likely be in one before the end of the year. A glance at the attached chart of the past 5 years of the SP-500 reveals two things. First, the long booming market ended a year ago. For the past 18 months, the stock market has been essentially flat. Second, while the Wall Street traders are currently “climbing the wall of worry” and pushing the index to new highs, this is on very low trading volume — the lowest volume of the past 5 years and this is an indication of weakness.
Holding stock equities at this time is a risky business; too risky for me.
I have switched from the bullish position of selling SP-500 PUTS to selling PUTS on the exchange traded fund (ETF) SH. This fund attempts to reflect the inverse of the SP-500, thus when the market goes down, SH goes up. Selling PUTS on the SH (or a similar fund – SDS) allows me to make a small amount of money as the market stagnates or climbs slowly. Most importantly, this strategy protects me from all losses should the market lapse into a bear market (substantiated downward direction).
If you want to (for taxes or whatever reason) hold your long equity positions, sell covered CALLS on them.
For more information, check out my prior posts on the subject.