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How to take advantage of an oddly quiet market

In a historically calm market, investors may wonder how best to profit off ultra-low volatility.

After all, the S&P 500 this year has been more likely to move less than 0.1 percent than to move more than 0.5 percent in a trading session. The index has closed at least 1 percent higher or lower a mere four times this year. The CBOE volatility index has fallen to 23-year lows (even as stocks have climbed).

So how should investors position themselves during this relatively subdued time? In a new interview, Washington Crossing Advisors portfolio manager Chad Morganlander said as the market has been "melting higher," investors ought to anticipate that volatility begins to perk up as the Federal Reserve continues to normalize monetary policy.

"Now, a strategy for when the Fed is raising interest rates is to look at companies that are raising dividends — dividend growers, that is. We did work on this going back 40 years, and it looks as if that slice of the equity market has outperformed the S&P with less volatility," Morganlander said Thursday on CNBC's "Trading Nation."

Should investors peer into the options market in this time of low volatility, they'll find that option premiums are quite cheap right now and should capitalize on that, said iiTrader senior market strategist Bill Baruch.

"If I'm somebody that has seen 10 percent growth in my portfolio in the first six months of this year, what you should do is take advantage of that cheap option premium. I personally believe that volatility is going to pick up here in the latter half of June, and it's going to last in through August and September. So, if you plan for that, use some of the cheap option volatility to protect your portfolio," Baruch said Thursday on "Trading Nation."

The reasons for the market's narrow range have included the rise of exchange-traded funds, which may cap swings in volatility, or that interest rates are still hovering around historic lows.

Some say the lack of volatility is not cause for worry. Malachite Capital founding partner and portfolio manager Jacob Weinig said on CNBC's "Trading Nation" that "I've heard a lot of people saying recently that the VIX is dead, that the VIX doesn't matter anymore … the VIX, in fact, is doing exactly what it's meant to be doing. It's reflective of the actual market volatility that we see."

Goldman Sachs CEO Lloyd Blankfein in early May described his concerns about the market's volatility in an interview with CNBC. He said, "Every time I get accustomed to low volatility, like we were towards the end of the Greenspan era, and we think we have all the levers under the control ... something erupts to remind us that the idea that anybody is in control of everything is hubris."

He added: "I don't know what brings us out of the doldrums, but I do know this is not a normal resting state."

In Friday trading, the S&P 500 was up 0.24 percent, the Dow Jones industrial average was up 0.07 percent and the Nasdaq Composite was up 0.44 percent.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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