Something Strange is Happening...

Something very unusual is happening this month - and it could mean that we'll be in for some extreme market volatility over the next few weeks. 

We are nearing the end of the first full week of September and so far the indices have managed to lose 2.6 percent. Of course, this is on top of a 6.6 percent decline in August. Investors are fearful and rightfully so. 

The 2.6 percent loss during the first three trading days is actually the second worst start in September in the S&P 500's history. 

There have only been 5 other occurrences where the S&P 500 has lost more than 3 percent during the first three trading sessions of September and according to analyst Jason Goepfert that has spelled trouble for the benchmark index going forward. 

He states that all 5 instances witnessed additional declines of over 9 percent during September and every one closed lower by the end of the month at least 5.8 percent. 

Here are the years courtesy of Sentimentrader.com. 

As you can see the S&P 500 does not fare well after a weak beginning to September. And even if the month starts out on a good foot, September remains the worst performing month of the year for the S&P 500 with an average decline of 0.67%. 

So given all of the seasonally historical woes that the market is faced with in September how can we, as investors, take advantage if we think the market lives up to its historical billing? 

There are several ways to approach the aforementioned question. 

One of the obvious ways and one that our commodities guru Kevin McElroy recommends is to buy Market Vectors Gold Miners ETF (NYSE: GDX), and it's little brother Market Vectors Junior Gold Miners ETF (NYSE: GDXJ). 

"The ETF offers a simple way to get diversification in the sector, and you'll save money on transaction fees by buying the ETF instead of the individual companies, and they actually have a pretty low annual expense ratio of just and 0.54%." 

Another way, and one that I think is more applicable given the short-term duration of the weakness, is selling a vertical call spread. Yesterday, our Chief Options Strategist, Andrew Crowder mentioned an way to play the historical weakness. 

He suggested the following:

Sell to open IWM Oct11 80 call

Buy to open IWM Oct11 82 call for a total net credit of $0.21

The trade allows iShares Russell 2000 (NYSE: IWM) to move lower, sideways or even 14.2 percent higher over the next 42 days (October 15 is options expiration). As long as IWM closes below $80 at or before options expiration the trade will make approximately 10.5 percent. 

If you think IWM moves 10.5 percent higher or to $76.85 over the next 42 days, it would be best just to buy the underlying ETF IWM.