Many of you have been wary about the “Sell in May and Go Away”, I found a video from Bloomberg arguing that this might not be so. The last 3 years was definitely showing May as the worst month, so if this will be different, we want to know, right?! Here’s the video :
Interestingly, Bill Gross one of the world’s top investors (PIMCO – bond fund) published a reflective essay on the role of major economic trends in the success of super-investors and he wrote “he might not have seen enough true variability to know if the epoch made him or if he made the epoch”.
http://www.bloomberg.com/news/2013-05-01/new-epoch-might-leave-top-investors-feeling-more-heat.html
I just want to nibble on this thought. The Philippines has been given an “investment grade” rating yesterday by Standard and Poor’s due to it is continued economic improvements, and it followed that the stockmarket has also risen, with the enthusiastic response of investors. Not to spoil the fun, but I just like to caution my new investor friends, against going in now, “investing for the long term”. Early success may lead you to think that you are doing great as an investor, but know that that’s the bull market not particularly due to (your) investment skills. Now I have absolute faith that the stockmarket gives a wealth of opportunities, but players must also be aware of the risks like the volatility from debt issues of Europe and China slowing as well (article here), and that recent rises may be due to “forward looking” positions which are going to be closed / sold. I can still remember buying in hearing all these positive news only to be squeezed by selldown (next week? “sell the news” phenomenon.) Like today, I was expecting a cruisy day given the ECB rate cut and US stocks cheered it with strong gains, and Australian stocks opened higher — but reversed gains. So just be aware that the market changes quite fast, I think for the month of May, the volatility will remain as the big risk in the market. You got to be prepared for it.
As for my trade, I closed the recent WPL trade I did on Monday. I did a Call Bear Spread Options strategy which is basically a position to take advantage of the fall in price of WPL as it goes ex-Dividend. The spread was worth 1.49 when I opened it, and closed it at .885 cents or a profit of .605. I feel that the price may still fall for the month, but I am still adjusting to the timeframe and learning the dynamics of the liquidity. Yesterday I was freaked out a little bit when the stock went so low at 36.15 but my position can’t be closed because the spread was very wide (40cents normally 10 cents) and my position is a little bigger than the offered units (20 contracts). I did check the liquidity, Open Interest and normal number of buyers and sellers along with the volume offered, but just be aware, that liquidity is dynamic – some may be waiting for the price action to calm down. for Also, it was probably because of the wait for ECB “event”. I was out now with 2x my initial risk 1R is 30cents) or gain of 200% for one week’s trade. And this won’t be different -I can’t wait for the weekend!
