It's summertime in the stock market, and the living is queasy. Doldrums and dog days, terms from the nautical and astronomical realm, conjure in most minds an image of late summer as a languid and uneventful period. And why should investors be different when setting expectations about the market? A look at the recent historical record, though, reveals that August has proven itself to be a rather rollicking month for stock prices.
Larry McMillan, the brains behind the McMillan Analysis options-strategy firm, recently canvassed the last couple of decades' worth of data for seasonal characteristics of the market and determined that August is, counterintuitively, quite volatile on average.
He took the Dow Jones Industrial Average's level on August 1 of each year since 1981 and then noted its change during the ensuing month, sometimes extending into September if a pronounced move was still in force. The results showed that "the absolute distance of the average move was 8.7%," McMillan reports. Even if the largest two and slimmest two moves are excluded, the average remains 7.9%.
That kind of volatility won't necessarily surprise anyone who traded through last August's crisis-addled market, when the Dow gave up almost 15%. But the fact that the late-summer jumpiness is so consistent is an eye-opener.
Because there is no particular tendency for the market to rise or fall in August -- there were eight down months and 18 up months since 1981 -- McMillan figures the way to capture the summer choppiness is to buy straddles, which means owning both a call and put on a stock or index at similar strike levels. This trade stands to be profitable in any dramatic jump or dive in stocks.
Was out with the boys last night. There are sales managers and two of them had some very juicy tidbits on mspg. First tidbit is mspg and Stupid PC have already inked a deal where mindspring will offer a free pc from Stupic PC for a 3 year contract with mindspring as your isp. It may also have a merger or buyout as part of the deal.
Second big tidbit is Microsoft wants Mindspring to take over MSN in exchange for a share of Mindspring or a buyout. I can't confirm either rumor obviously but one of the guys has a brother who does a lot of business with Mindspring and says the Stupid PC deal is already complete and the MSN deal is still be negotiated.
Don't bank on either one though as you know how rumors go.