Podcast – Episode 208 — Should You Sell in May and Go Away

Does “Sell In May And Go Away” Still Work?

As the weather gets hotter and the kids get out of school, a familiar phrase starts echoing across financial news networks: “Sell in May and go away.” It’s one of the most universally accepted pieces of stock market wisdom. The idea is simple: cash out your positions in the spring, take a break from the markets over the summer, and come back after Labor Day to avoid the dreaded “summer doldrums.”

But as conservative option sellers who treat our trading like a business, we don’t just blindly follow catchy rhymes. We look at the numbers. Does stepping away from the market actually protect your capital? Is it a valid money-making strategy, or just an outdated myth? Let’s dive into the hard data and figure out exactly how you should be positioning your portfolio this summer.

The Origins of a Wall Street Myth

To understand the saying, we have to look back in history. The phrase actually originated in London centuries ago (“Sell in May and go away, and come on back on St. Leger’s Day”). The tradition carried over to Wall Street, where the wealthy financial elite—like legendary trader Jesse Livermore—would literally leave New York City in the sweltering summer months.

They would take their yachts to Florida, head out to the Hamptons, or retreat to the sea air for their health. Because all the major players physically left the city, trading volume dried up. The market would simply drift sideways until September.

It makes historical sense. But does it apply to today’s highly digitized, globally connected markets?

What the Hard Data Actually Says

When we dig into the research from institutions like Columbia Business School and LPL Research, a fascinating picture emerges.

First, the drop in volume is absolutely real. From the 4th of July through Labor Day, stock trading volume generally declines by about 20% to 30%. This isn’t just a U.S. phenomenon, either; it happens across the 10 largest global markets. Both retail and institutional investors simply trade less when families are on vacation.

However, a drop in volume does not mean a drop in prices. If you sold in May to avoid a market crash, historically, you would have made a massive mistake.

• Average Returns: From 1950 to today, the market has produced an average positive return of 2.1% from May to October.

• Winning Percentages: The market is historically higher during this period roughly two-thirds of the time.

• Recent Strength: Over the last 12 years, the market has been up 82% of the time during these months, with an average gain of around 5%.

Contrary to popular belief, July is historically one of the strongest single months of the entire year for the stock market. If you sell in May, you are completely missing out on that reliable upward drift.

The Double-Edged Sword of Summer Volume

While the market tends to drift higher, the thin summer volume creates a unique environment that you must respect.

Because there are fewer participants, the market enters a “news vacuum.” With earnings seasons spaced out and the Fed often quiet, there aren’t many catalysts to drive price action. But when surprise macroeconomic or geopolitical news does hit, the lack of liquidity means the market can violently overreact. Prices can gap up or drop in a major hurry.

For option sellers, thin volume also means thinner liquidity and wider bid-ask spreads. If you are trading during the summer months, it is absolutely critical that you strictly use limit orders. Never use market orders, and do not chase a bad fill just to get into a trade.

The Option Seller’s Edge

While traditional stock investors might get bored during the summer doldrums, option sellers thrive in this environment. A quiet, range-bound market is exactly what we want.

“The beautiful part is that the theta is still there, it still goes, doesn’t matter whether you’re there every day or not.” As option sellers, we aren’t trying to guess market direction. We are simply letting time decay work in our favor. Furthermore, historical data shows that the VIX (the volatility index) actually tends to trend slightly higher from July through early October. As volatility creeps up, the premiums on options increase. That means we are getting paid more money to take on the same amount of risk.

Strategies like selling naked puts on high-quality threshold stocks or placing well-structured credit spreads are fantastic plays during these months. Just keep an eye on open interest, stick to highly liquid underlying stocks (like the SPX or major blue chips), and let the theta do the heavy lifting.

The Real Danger Month

So, if you shouldn’t sell in May, when should you take a break?

The data is loud and clear: September is historically the worst month of the year for the stock market. It is the month most prone to severe drawdowns and volatility spikes. If you have a highly appreciated portfolio and the market has been running red-hot for months, September is the logical time to trim your positions, cut back on your risk, and protect your capital.

Ironically, September—when the kids are back in school and the lines are short—is the absolute best time to take your family on a vacation.

Final Thoughts: Just Keep Selling

“Sell in May and go away” might be a catchy jingle that the financial media loves to repeat, but it simply isn’t backed by modern data. The market tends to drift higher, theta decay keeps working, and premiums often get a nice little bump.

Respect the wider spreads, keep your position sizes manageable, and enjoy a relaxing summer of collecting premium.

Podcast Transcript

“Sell in May and go away.” Should we do it, or should we stay? Today we’re talking about the summer doldrums in the stock market. Summer is officially here. It’s hot, it’s humid, and today we’re going to dive into whether you should actually take a break from the markets.

We’ve pulled the research from Columbia Business School, LPL Research, American Century, Baldwin Management, and more. We are going to dive deep to see if this tried-and-true adage makes sense. Is it a money-making strategy? And as an option seller, how can we best benefit from the results?

Welcome to the Option Genius show! My name is Alan, and I’m here with Matt. We talk about the markets, the trades we have going on, and ways we can actually make more money from trading. As option sellers, we like theta. We like relaxing trades where you put them on and let the odds work in your favor without trying to pick market direction. But we do look at the research to find our edge.

Let’s take a quick look at the markets. We’ve seen oil prices come down recently, though historically, gasoline prices go up in the summer because refineries have to change their blends so the fuel doesn’t evaporate in the heat.

We’ve also been keeping an eye on SpaceX. It popped recently but gave it all back, and we have some members successfully selling puts on it. Valuing SpaceX is tough right now—it’s mostly conjecture—but if you’re looking for long-term holds, it’s high on my list alongside Robinhood.

I really identify with that space. I’m a long-term guy, and I think SpaceX will be a great bet over time.

Number three on my long-term list is Eli Lilly. The hoopla around the AI trade is propelling the stock market higher, but if you add up all the revenue generated by AI, it’s about the same as the revenue from GLP-1 weight loss drugs. Eli Lilly is the biggest player in that pond, and they are working on a next-generation peptide that is currently in phase three trials. When it hits the market, the revenue will likely blow up.

But that’s not today’s main topic. Let’s get into it: Do the markets take a summer vacation?

Where did “Sell in May and go away” even come from? According to history, it originated in London. The idea carried over to New York, where all the big bankers and traders would leave the sweltering city in the summertime, go to the Hamptons, or take their yachts to Florida. They wouldn’t come back until Labor Day. Because of this, the volume of the market dried up, and prices would just drift sideways.

You’ve been trading for a while. Is this still happening today?

Yes, to some degree. You just know from trading that the summer months are generally quiet. And then, come September, it consistently starts getting a little bit rocky.

Exactly. If you look at the numbers from July 4th through Labor Day, there is a legitimate decline in stock trading volume of about 20% to 30%. According to Columbia Business School, this happens in the 10 largest markets around the world. Both retail and institutional investors trade less. Kids are out of school, and people are taking vacations.

But there’s also a big news vacuum. Earnings are bunched up, the Fed might be quiet, and there aren’t many catalysts to drive the market higher.

I think the market will generally continue to go sideways in the summer, but because volume is so low, it becomes very susceptible to a big news event. Any geopolitical event or surprise news can move the markets in a much larger way than normal. You can’t be complacent.

The real data tells a different story about prices dropping. From 1950 to today, from May to October, the market has produced an average return of 2.1%. It’s higher roughly two-thirds of the time. Over the past 12 years, the market has actually gone up about 5% in that time period and has been higher 82% of the time.

Contrary to what you might think, July is historically one of the strongest months of the year for the stock market.

That was hard to believe when I first heard it!

So, selling in May will actually have you missing out on one of the best months. The real seasonal weak spot is September—that is historically the most negative month across decades. So, “Sell in May and go away” is officially debunked.

The thin summer volume is a double-edged sword. It means thinner liquidity and wider bid-ask spreads. If you are trading, make sure you use limit orders. Don’t use market orders and don’t chase a bad fill.

The beautiful part is that theta is still there. Time decay keeps working whether the volume is high or low. For example, with Independence Day coming up and the markets closed, we get a free day of theta.

And a quiet, range-bound market is perfect for us.

Exactly. Plus, the VIX (volatility index) actually tends to trend higher from July to October. As volatility goes up, option premiums go up, meaning we get more money for our options. So, these next few months are a great time to be selling options and making a decent return. Just watch out for September. That is the time to cut back on positions, take your lumps if needed, and maybe go on that family vacation.

Before we wrap up, we are excited to announce our “Financial Independence Day” specials next week. We’re offering seven days of deals on our packages.

Most importantly, we are rolling out automation for our Market Power members! We’ve partnered with a software company so that your trades can be done automatically in your Schwab accounts. It used to be a dream that cost millions to develop, and now we have it. If you miss morning trades because you’re busy, the software just handles it for you. It’s making trading so much more fun.

This debunks everything we thought about the summer markets. Sell in May? I’m going to relabel it: Sell options and stay!

Just keep selling premium! Thank you all for joining us. If you haven’t yet, please subscribe to the podcast and share this with any friends who still believe they need to sell their portfolios in May. Have a great weekend, and we’ll see you next Wednesday!