How to Invest When the Market is Trading Sideways

Investing when the markets are turbulent can present some unique challenges and opportunities. But it can be equally profitable to trade when the markets are not doing much of anything. You just need to know the strategies that can pay you a stream of income when the markets are flat. Veteran investors know many of these strategies and now you can too. So here's how to invest when the market is trading sideways.

Table of Contents

  • Why a disciplined investor will not have anything to do

  • Options strategies to take advantage of the reduced volatility

  • Why dividend investing is simple and efficient

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Stay the course

If you have a well-diversified stock portfolio that provides growth and income, then you may not need to do anything. If you have carefully constructed your portfolio in a disciplined manner to grow in all types of markets, then no adjustments may be necessary. You can just sit back and let your portfolio do its thing without having to worry about current market conditions. But you may be an active trader who is always looking for quick profits. If so, then the following strategies may be more appealing. They can show you how to invest when the market is trading sideways.

Write covered calls

This is one of the simplest ways to profit when the markets are calm. If you own shares of stock or ETFs, then you can sell calls on your shares. This will allow you to keep the premiums as profit. For example, say you own 1000 shares of a stock that is trading at $50 a share. You could sell 10 calls at a strike price of $51 per share. Then you can collect the premiums for as long as the stock stays at that price.

Of course, there is the risk that the stock could rise past your strike price. If that happens, then you will get called out and must deliver the stock at $51 per share at a time when the market price may be higher. This can result in a taxable capital gain if you are not holding your shares in an IRA. You need to be cognizant of the possible consequences of getting called out. So, you may want to use a strike price that is a little further away from the market price in order to avoid this. Your premiums will not be as high, but there is also less chance that you will get called out at some point.

Sell naked puts

Let's say you have had your eye on a particular stock or ETF for some time now. You would like to get in at a certain price. You can sell naked puts on that stock or ETF until it reaches your strike price. Once your stock or ETF hits that price, you will buy in automatically. But you will collect a regular premium in the meantime while you wait for this to happen.


You want to buy a certain stock at $70 per share. You can sell naked puts at that strike price until the stock reaches that price. When it does, you will be obligated to buy the stock at $70 per share, but that's OK because you wanted to buy the stock anyway. You can always sell naked puts as an easy way to make some extra money while you wait for your stock or ETF to reach the price at which you want to buy.

Spreads and straddles

Put and Call Debit Spreads - There are several strategies that you can use to profit during a calm market. These strategies may not be as profitable as the ones that you use when the markets are turbulent, but they can still make you some extra money. Here is a breakdown of five of these strategies:

Strategy #1

Vertical long at-the-money call spread - This is a bullish strategy. With this strategy, you will buy a call that's one strike (or dollar) in the money and then also sell a call that is one strike (dollar) out of the money. The cost of this strategy is uncertain because it depends upon how far in (and out) of the money your calls are.

The two (or more) calls must have the same expiration date. You may want to consider having the amount of the debit (the amount paid for the long call) be less than the amount you pay for the long call. If you can do this, then the trade's theta, or time decay, will be positive for this strategy. You may want to look at options that are at least a month or two out from the current date in order to maximize your possible profits. These trades are typically closed out when the expiration date draws near.

Strategy #2

Do a long out-of-the-money calendar call trade - This is also a bullish strategy. With this strategy, you will buy an out-of-the-money call for a back month and then sell a call in a coming month with the same strike price. Calendar spreads become the most valuable when the stock or index is at or very near the strike price when it expires. For this reason, the profit in this type of trade is limited. You can make a profit up to the strike price with this type of trade, but not much beyond it.

Strategy #3

Long at the money vertical put - This is a fundamentally bearish strategy. With this strategy, you will buy a put that is one dollar in the money and then sell a put with the same expiration date that's one dollar out of the money. In this case, the amount of the debit should be less than the intrinsic value of the put.

The time decay for this strategy should therefore be positive. You may want to consider setting the expiration a month or two out in order to get a greater duration on your trade. You will probably make the most money when the expiration date draws near, or the trade becomes deep in the money.

Strategy #4

Long out of the money calendar put - This is also a bearish strategy. Here you will buy an out of the money put in a past month and the sell a put in a coming month at the same strike price. This type of trade is the most valuable when the underlying stock or ETF is at or near the strike price when the put nears expiration. But this type of trade only has limited profit potential based on its design.

For best results, you could perhaps sell a put that is perhaps anywhere from 25 to 40 days from expiration and buy a put that will not expire until about 50 to 90 days from now. Ideally, you want the stock or ETF to remain at its current price until the expiration of the short put has gone by, then offers growth potential that is at least equal to 1 ½ times the debit price at expiration.

Strategy #5

Do a short straddle of the market. This is a market-neutral strategy. You will simply sell a call and a put with the same strike prices and wait to see which direction the market or stock goes. For this strategy, you may want to choose expiration dates that are relatively near. You may also want to consider closing out your positions as soon as you start making a profit.

Yield investing

Of course, you may not want to trade options in order to generate income. you can always turn to more traditional methods to do so. Of course, this involves buying bonds and other types of fixed-income securities that pay dividends and interest. However, you may not want to lock your money up for a long period of time in order to do this. But corporate bonds and preferred stocks can provide decent rates of return even when interest rates are low.

Limited partnerships and REITs can also provide competitive levels of income, although they do come with some price risk. If interest rates are high, then you may want to look at longer-term offerings. If rates are low, then you should probably stick to offerings with shorter maturities. But this is one of the most straightforward methods of how to invest when the market is trading sideways.


These are just some of the strategies that you can use to make money when the markets are placid. Options strategies may yield the most money, but they will also require the most work. Income-producing investments may be a more viable alternative if you are not experienced enough to trade options. But it may cost you big money to wait for the market to wake up again. Now is the time to act and generate some additional income for your portfolio.

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