How To Trade A Trump Win And A Trump Loss

After what's seemed like an endless election season, we've now come to a head with the US election happening as we speak.

Its fair to say the impact of this election on both US society and markets will last for years to come, but as a trader, I'm mostly concerned with how markets will react and how I can manage my risk.

While we've been long VIX since it was in the 18's ahead of this election to hedge the elevated bid to volatility, I feel there is an obvious trade candidate (no pun intended) that will have a drastic response to the outcome of this election.

Regardless of whether Trump wins or loses, this stock – which is tied closely to him – will react strongly.

Here's how to trade Trump winning or losing using this stock.

Enter Trump Media & Technology Group (DJT), which is really the stock for the Trump organization and media. Today alone the stock is trading 84.6M shares against a 30 day average of 54.17M shares, which is a 56% increase, hence demonstrating how many traders are a) actively trading this ahead of the election and b) have a lot to win/lose should the election go a certain way.

I'm going to explore the PFP (positioning, flows and price action) for DJT along with where I think a Trump win or loss in the election puts the stock.

Positioning on DJT

With a current price of $39.20 as of this writing we have the TPS (top put strike) at $20, the TGS (top gamma strike) at $30 and the TCS (top call strike) at $70. To translate this a bit, really bullish traders (i.e. betting on Trump winning) think DJT will rise to $70 for a ‘moonshot' play.

I see almost the same amount of notional gamma at $40, $50 and $60 on the way to $70, so there is enough fuel to get there should Trump win the presidency. My sense is a dominant Trump win could hit $70 by the Dec options expiration (op-ex), or perhaps end of the year with $40 being the first major upside target.

$30 is the TGS and the level the bulls/bears agree on the most. So, a Trump loss means a likely move to $30, while clearing that on a daily closing basis brings up the TPS at $20 for the next downside target should Trump lose the election handily. Below $20, I see some fuel for a $15 or $10 print, but virtually no bearish fuel below that. Hence the downside disaster scenario for Trump would be a move to $10.

[Next Up: November’s Profit Catalysts: Trading Strategies for Key Market Events. Join expert trader Nic Chahine as he explores key events set to influence the stock market in November. This interactive session will provide essential strategies for trading through the upcoming election results, the Federal Reserve's next interest rate decision, and insights from October's ADP jobs report. By the end of this webinar, you'll be prepared with actionable insights to confidently trade in a month packed with pivotal economic events.]

Price Action on DJT

Looking at the 1hr chart below, the low since October 15 was about $25 while the high was $57.5 with the current price near the middle of that range just under $40.

1hr Chart DJT

While the stock has sold off 4 of the last 6 sessions, it has found some solid gains the last two sessions heading into the election with above average share buying.

Overall though this bounce has been decently corrective, so traders haven't been pining hand over fist to be long DJT. With the TGS at $30, this has been a relatively safe bet. If Trump loses the election, I think we erase the last two days of gains by end of the week should we have a clear decision by then.

Flows on DJT

The options market has had a very different view on DJT today than the stock market Options traders have consistently been buying small amounts of puts (with a very high implied vol for the Nov 8 op-ex around 700% vs historical *annualized* around 150%).

On the call side, only in the last 15mins have I seen call buying actually become net positive on the day, so a mild amount of call buying just past lunch.

Overall, the options market isn't leaning heavily one way or another, hence most of the gains on the day are driven by shares. Above $30, calls are in control, but below $30, puts are in control. Thus, option traders are not betting heavy on DJT today.

In Summary

I think the positional data is the most important data since option flows are not dominant and don't stand out, while shares are active (which is to be expected). Positionally, we have $30, $20 and $10 to the downside should Trump lose while upside has a range of $40 up to $70 with the latter target being quite viable for us if Trump wins dominantly.

The IV for the November op-ex is still elevated on those calls, so I prefer the December op-ex, perhaps call spreads for bullish plays while looking at bear put spreads for bearish plays, all for the December op-ex to avoid the heavy Vega decay.

A blowout election (win or loss) will have the starkest reaction while a highly contested election likely keeps vol bid until the clear winner emerges.

I'll share more of our trade ideas live with the Benzinga Option School & Trading Waves members, so make sure you join to see how I'm trading the earnings this week. I hope to see you there.

Maxim Elramsisy and Phil Mistry on Shutterstock