I’ve been writing about the Trump trade, talking with people making Trump trades, and parsing the Trump trade for any hints that the 2024 presidential election is leaning one way or the other.
Finally, I made a Trump trade of my own: A financial investment meant to capitalize on the outcome of the presidential election. I bought, with my own money, an option contract on shares of Donald Trump’s new company, Trump Media and Technology Group (DJT). I will either make money or lose money based on the outcome of the presidential election — then let all of you know which way it went, so you can cheer me on or roast me.
I’m not a sophisticated trader. I could have simply bought shares in Trump’s company if I thought Trump was going to win or shorted those shares if I thought Trump was going to lose. But the hot trades are in options on DJT shares, which are timed bets allowing the trader to either buy or sell shares in the future at a certain price by a certain deadline. I wanted to be where the action is and learn more about what’s going on deeper in the markets than I usually go.
I've never traded options before, so I asked Eric Hale, founder and CEO of Trader Oasis, to guide me through the process. Hale didn’t tell me what to buy. He asked me what I wanted out of the trade. He emphasized that his guidance didn’t constitute financial advice and that option betting has a binary outcome: I would either make a one-time profit or lose my investment completely.
Winner? Loser? Stay tuned. Republican presidential nominee former President Donald Trump talks to reporters at Green Bay Austin Straubel International Airport, Wednesday, Oct. 30, 2024, in Green Bay, Wis. (AP Photo/Julia Demaree Nikhinson) ·ASSOCIATED PRESS
Frankly, he told me, this isn’t a shrewd way to spend your money.
I said thanks for the advice, now can we figure out the trade? I take the polls at face value. Trump and Democratic nominee Kamala Harris are basically tied. I have no inside info — and I have no clue who’s going to win. So I didn’t feel strongly one way or the other about whether I should bet on a Trump win or a Harris win.
I do think, however, that betting markets overstate Trump’s odds and that traders are placing too much emphasis on betting odds they believe to be bullish for Trump. That could be a false signal.
?USD
(DJT)
Jim Bianco of Bianco Research recently joined the YF Capitol Gains podcast to explain how betting markets work. At the time, betting markets gave Trump 60% odds of winning and Harris 40%. If that were a poll, Trump would have a huge lead. But Bianco explained that betting markets are probabilities, not poll margins, and anything less than 66% for Trump is the equivalent of a toss-up.
Investors in DJT have not been acting like the race is a toss-up. DJT, whose main product is the Truth Social app, is a pipsqueak social media company with little revenue that probably has no chance if Trump loses. Trump himself is the sole attraction on Truth Social — and if he loses in 2024, his political career will mostly be over and Truth Social will lose the only real reason for people to join. But if Trump wins, Truth Social could be a necessary destination for everybody eager to know what’s happening as Trumpworld takes over the executive branch.
If there were a "Harris trade," I'd be looking into investing in that too. But Kamala Harris mostly represents the status quo in terms of trade, financial markets, and other things investors care about. Trump, with his plans to jack up import tariffs, deport millions of migrants, and further slash taxes, would bring the sorts of changes that disrupt markets and reprice assets.
The DJT share price is probably the best single indicator of whether investors think Trump is likely to win. In mid-September, they didn't, and DJT sank to around $12 per share, the lowest level since the company went public in March and closed at $58 on its first day of trading. Traders were basically guessing that Trump would lose and betting that his company would drift into oblivion. Since then, however, the stock has skyrocketed to as high as $52 on Oct. 29. On Oct. 30, the day I placed my wager, DJT closed at $40.
My guess is that DJT is overvalued and is likely to fall in price, possibly by a lot. So I bought a put contract with a strike price of $25 that expires on Nov. 15, 2024. An options contract typically involves 100 shares. The price of my put was $3.90 per share, or about $390 in total, for the right to sell 100 shares.
What this means is that if the price of DJT stays above $25 through the time my contract expires on the close of trading on Nov. 15, I’ll be out my $390 and the trade is over. If the price goes below $25, before the contract expires, I’ll be “in the money,” as investors say.
Hale helped me estimate my possible gain at different prices. I’ll break even at the point the contract expires, on Nov. 15, if the share price falls to $21.10, at which point I will have fully recouped my $390 investment. At $15, I’ll make a net profit of at least $610. My net gain would be at least $1,110 if the price drops to $10 and at least $2,110 if the price drops to $0. My return could be greater if the price of DJT falls sooner.
My track record on trendy bets is lousy. In 2021, I tried my hand at meme stock trading by buying 171 shares of BlackBerry at $14.60 per share, for about $2,500 in total. If BlackBerry had taken off the way GameStop did, I could have netted $200,000. But BlackBerry had no meme left in it and I ended up losing $1,760.
Around 2017, I bought some shares of Fannie Mae, the giant mortgage underwriter that had been in conservatorship since the 2008 financial crisis. The play was that the Trump administration would privatize Fannie Mae and turn it into a real company, sending the stock higher. But the stock I bought at around $3.75 per share only went down. It now trades at around $1.40. I sold, sheepishly, a few years ago.
My bet on DJT falling below $25 could pay off if Trump wins the election and the stock price tanks anyway. That seems unlikely, however, which means I’m basically staking my bet on Kamala Harris winning and Trump losing. So Trump fans can freely troll me if Trump wins and I end up $390 poorer. If I win, I’ll try to be a good sport about it.
Either way, watch Yahoo Finance for one final, climactic dispatch on how my Trump trade turns out.
