May is a month when we wish our mom a Happy Mother’s Day, celebrate graduations, and say, “May the Fourth be with you!” to all of our Star Wars-loving friends.

But May is also associated with another saying in the finance world:

“Sell in May, and go away.”

What exactly does the traditional financial media mean by this? Well, they mean that May is considered a historically bad month for stockholders, so they suggest that now is the time to take profits and sell out of long stock positions. The traditional financial media outlets also reference studies looking at 2 six-month periods historically: May through October, and November through April.

The Internet is currently littered with articles, mostly copies and repacks of one original, saying that the six-month period from May to October greatly underperforms November to April.

But what if we told you that wasn’t true?

Here at tastytrade, we refuse to take anything we read at face value, so we dove in a little deeper to take a look at the month of May and the stock market (S&P 500). Initially, we broke down all the months of the year and looked at the percentage of time that they were positive months and also the average return. May does not stand out as an under-performer with regards to positive occurrences, given that it has been up 57% of the time over the last 64 years; May stands above 5 other months in this metric. May’s average return over the past 64 years was 0.2%, which is not outstanding, but it is not negative like some of the other months.

But if that’s not convincing enough, we tested the six-month periods that were referenced in several articles, which stated that May to October underperforms.

Our back testing concluded the same result; May through October is mediocre compared to November through April. We took this a step further, breaking these six-month periods into 4 three-month periods.

The results showed that the underperformance in May to October was actually focused in the August to October period!

So May really doesn’t look that bad.

Maybe in a few years they will be saying, “sell in August or go bust”. It’s still vital to keep in mind that while we have 64 years of data, that boils down to only 64 occurrences, making it difficult to draw substantial conclusions.  

With all of this said, we at tastytrade would rather focus on opportunity and high implied volatility which is historically greater in the fall, specifically in October. We stay sharp and look for opportunity when it presents itself and try to filter out the noise!

Wanna know more? Check out the Market Measures segment from this morning below!


Have questions or comments about selling in May? Email the tastytrade research team at research@tastytrade.com or leave a comment below!