Why Endure Winter When One Can Trade?

For the S&P 500, December has been the best performing month every year since 1960. That's 49 years of data, and if yesterday's rally was a sign of things to come, bulls are back to finish the year with a vengeance for the 50th consecutive year.

But to continue this trend, the S&P 500 would have to beat September's per cent gain of 8.76. That would require the breadth market to close above 1283.91 (1206.07 today) by New Year's Eve, a feat that traders might not be compelled to do just yet. Given the gains seen since the end of June, many are still anticipating a correction in the stock market. 1283.91 is also 4.63 per cent higher than the 52-week high set on November 5, 2010.

For the market to reach such lofty goals, the problems over Europe must either be resolved or traders must overcome these worries. Positive news from China, India, Japan, other parts of Europe, and America could help quash these fears and provide confidence that the global recovery remains intact.

If you fully believe that December will continue to be another stellar month, even if it does not beat 1284, consider getting positions ready on high-beta stocks on the next down day. Companies like Apple (AAPL), International Business Machines (IBM), Goldman Sachs (GS), Google (GOOG), MasterCard (MA), and Starbucks (SBUX) are a few S&P 500 components that often move substantially more than the index itself.

However, if you're leaning more towards a potential correction or that the month will finish flat from today's close, consider buying some protection in puts or writing calls to earn some additional income for Christmas shopping.

*Disclosure: I do not own any stocks or related derivatives mentioned in this blog. The blog is not intended to be financial advice or recommendations on buying or selling equities mentioned above. Before making any financial purchase, consider your investment objectives, risk tolerance, and liquidity needs (especially during Christmas) and speak to a financial advisor.