There are few sectors as volatile, risky, yet as potentially lucrative, than initial public offerings (IPOs).

Every time a company turns to the public markets to raise cash, it’s either a boom or bust. Very rarely are they ever just flat.

This week was no exception. The much-hailed Tesla Motors (NASDAQ:TSLA) has been a smashing success so far. The maker of six-figure electric sports cars’ shares opened for trading around $18 and have soared in the past two days to more than $30 per share (a gain of 60%).

Although Tesla has already started giving back some gains, the success of the Tesla IPO just shows the opportunities that exist in the IPO market. And if you play by the right sight of rules, you can do really well in any type of market and limit risk.

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When times are tough, this simple investment strategy works exceptionally well.

Right now times are tough.

Stocks, as a whole, are overvalued. They could move lower or higher. They’re stuck in the middle. Jeremy Grantham, of Grantham Mayo & Van Otterloo, summed it up well in his latest quarterly letter, “The global equity markets taken together are moderately overpriced, and the U.S. part is now very overpriced but not nearly so bad as it could be.”  Think: Too late to buy, too early to sell.

Bonds are yielding next to nothing. While the markets have rebounded in the last couple of weeks, bonds have too. The yield on the 10-year Treasury bond has fallen to a meager 3.22%.

And the economy shows no signs of genuinely rebounding. High unemployment is here to stay. Tax increases are just months away. And business investment, expansion and risk-taking are way down.

It’s a tough time for most investments. And that means it’s a great time for covered call writing - an investment strategy perfectly tailored for this type of market. And, if you’ve not too familiar with covered call writing, there’s a “no hassle” way to take advantage of it.

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There’s nothing worse than bad news to drive a tough market lower.

When the U.S. government announced BP should cut its dividend, it wants to hold BP responsible for wages lost due to the Gulf of Mexico drilling moratorium, and the spill wasn’t going to be stopped anytime soon, that’s exactly what the market got – some bad news.

Since then there have been some bits of positive noise in consumer sentiment and China’s exports, but the market is still facing a lot of headwinds.

And right now is a good time to take a look at the lessons BP has taught this week about investing successfully and how we can apply them to the opportunities created by the spill.

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The herd is running for the exits.

Mutual fund investors are selling out at a faster and faster pace each week.

The Investment Company Institute, which tracks mutual fund inflow and outflows, reports redemptions have been surging in equity mutual funds. The last week of April, investors put in a net $1.85 billion into stock mutual funds. Since then though, it has been all downhill.

Investors pulled out a net $1.44 billion in the first week of May, $10 billion the next week, $1.1 billion the week after that, and $17.4 billion in the last week of May.

It’s happening all over. Canadian investors pulled out between $1 billion and $1.5 billion from mutual funds in May.

The size and consistency of the redemptions has had a noticeable impact on the markets. Aside from the general decline, there real impact can be seen in the last thirty minutes of each trading day.

The last half hour of trading is usually dominated by mutual funds. This relatively brief period is when mutual funds, if they have to meet significant redemptions that day, are forced to sell stocks and raise cash.

The industry which has had as much as $11 trillion of other people’s money to throw around in the U.S. plays a very big role in the markets. That’s why over the last few weeks there have been sizeable sell-offs at the end of a lot of the days (today’s late-afternoon uptick was a rare rebound).

Worried about this startling new trend in mutual fund investors running for the exits?

You shouldn’t be. As history has proven time and time again, mutual fund investors buy and sell at the worst possible times.

So with the mutual fund investors pulling out of stocks, it’s time to take a step back, look at what’s really going on, and get prepared to seize opportunities when they present themselves. Here's where you will find them.

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The only thing that matters in this market is liquidity.

As last Thursday’s market sell-off and this week’s rebound have proven, the only real factor driving the markets higher is liquidity.

That’s why all the recent action directly or indirectly related to the Greek bailout, the European Central Bank (ECB) monetizing more debt, the ongoing bailouts of Fannie Mae and Freddie Mac, and deep deficits of Western governments at all levels, simply further cement the most important trend of the next decade.

It’s a trend that will make fortunes for some and cost others a lot. Here’s how to ensure you’re on the right side of it all.

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