Until further notice, I am going to consider this a sideways market instead of trying to guess whether the next big move will be up or down.
In terms of trading implications, this means selling volatility in the form of bear spreads, iron condors, iron butterflies, short strangles, short straddles, selling an occasional naked call, and even that old standby, covered calls.
If you are not a regular options seller, many of these strategies can seem daunting, risky, expensive, and a lot of work. While this can be the case, there is an easy way: a covered call fund or ETF. I have prominently mentioned BEP here in the past. BEP, also known as the S&P 500 Covered Call Fund, is a closed-end fund that does exactly what the fund’s name says. I am increasingly becoming more of a fan of another closed-end fund that is very similar: the Madison/Claymore Covered Call and Equity Strategy Fund (MCN). This fund trades a little more actively than BEP, appears to be a little more flexible in its investment approach than BEP, and carries a current dividend yield of 11.5%.
In a sideways market where investors fear a lot of volatility, I’ll take 11.5% and a chance to participate in an up move any day…