Man, it’s dull out there. Like really, really dull. The 5-day historical volatility for the S&P 500 has fallen back down to 6%. The market range has compressed like a coiled spring. Bulls and bears likely find themselves equally frustrated.

So what’s a trader to do when the wind dies down, the sails sag, and equities start to drift? I have 4 ideas.

• Embrace dividends
• Seek strength
• Play Theta
• Be patient

Embrace Dividends

Remember that equity investors get paid two ways: price appreciation and dividends. At times when price isn’t appreciating (like now), dividends at least pay you for sticking around. It may not seem like much in the short run, but in the long run, these cash payouts can add up.

Here’s my favorite stat illustrating the massive boost reinvested dividends can give to a portfolio.

“According to Professors Elroy Dimson, Paul Marsh, and Mike Staunton of London Business School, if you had invested $1 in U.S. stocks in 1900 and spent all your dividends, your stock portfolio would have grown to $198 by 2000.  But if you had reinvested all your dividends, your stock portfolio would have been worth $16,797! Far from being an afterthought, dividends are the greatest force in stock investing.”

Jason Zweig in The Intelligent Investor

Market returns are lumpy and largely random year-to-year. But the dividend stream has been incredibly consistent for those that stayed the course. I’ve said this before, but it’s worth repeating. The S&P 500’s dividend has grown nearly 6% annually for the past 50+ years.

This isn’t so much a call to rotate into dividend-paying stocks or ETFs just because the market has drifted for a spell. It’s more a callout to recognize why you should own dividend-paying investments in the first place. The cash income arrives whether the market is rising, falling, or stuck in the mud.

Seek Strength

We put emphasis on the trend of the S&P 500 for a good reason. Most stocks follow it. The way I learned it was that a rising tide rises all boats, and a falling tide lowers all boats. But it’s a slight exaggeration. Most stocks move with the broad market, but not all. If you’re going to be profitable with directional trades in a directionless market, you must seek the strongest stocks. These are those exhibiting relative strength or outperformance. And then hope that they continue to do so after you jump on.

The obvious example this year is tech stocks. The Nasdaq is up 23% year-to-date, far outpacing the S&P 500 (up 7%) and the Russell 2000 (flat). If you caught onto the strength early, then you’ve likely cashed in with directional trades despite the rest of the market’s lack of vigor.

Finding strength can be as easy as searching for stocks making 52-week highs or even 3-month or 1-month highs.

Play Theta

In a directionless market, cash flow is king. And nowhere is that more apparent than in the host of theta-based strategies. We’re talking naked puts, covered calls, bull puts, bear calls, iron condors, short strangles, and others. Traders who have been focused on selling calls and puts have fared just fine. Indeed, they probably want nothing more than for equities to continue their sideways trot.

Remember, too, that you can turn up the dial on how quickly your cash flow arrives. If you find selling monthly covered calls too slow for your taste, then sell weeklys. You can vary the time and delta to increase or decrease your aggressiveness.

Be Patient

Go look at the S&P 500 on a daily chart for the past few decades, and do you know what you’ll discover? Stocks are only healthy about two to three times a year. In other words, a few times a year, you get a really nice, easy uptrend. The rest of the time, equities are trending lower or rangebound. If you want to be there to collect when the uptrends arrive, you have to be patient through the less exciting times. The market doesn’t favor all strategies all the time. It ebbs and flows. When structuring your trading approach, you have two primary approaches:

One: Focus on one strategy and simply be patient during times when the market conditions don’t support it (e.g., it’s a directional system, and the market is stuck in a range). Minimize the damage during adverse conditions and be there to capitalize when better conditions return.

Two: Trade multiple strategies and try to rotate between them depending on what’s in favor and what’s not. (Cash flow during non-trending, directional during trending).

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