Just hours before the conclusion of the 2024 presidential election, both the polls and the options market seemingly have aligned to one consensus opinion: Vice President Kamala Harris may be headed toward a historic victory. While it’s impossible to declare such a contentious result with certainty, trading dynamics of Trump Media & Technology Group (DJT) lend themselves to that inference.
First, the Des Moines Register/Mediacom Iowa Poll showed that Harris leads former President Donald J. Trump in the Hawkeye State, 47% to 44%. What’s particularly shocking about this result is the broader implication. Iowa’s population is predominantly white and rural, meaning that Harris could outperform in Rust Belt states. It also suggests that the vice president may benefit from the shy Harris voter phenomenon.
Second, DJT stock has been incredibly volatile recently. Yes, shares have almost doubled in value since the start of the year. Undeniably, Trump Media benefits from strong grassroots support. However, even with Monday’s big jump — helped in large part by rumors that Elon Musk could buy the struggling social media enterprise — DJT tanked almost 36% in the past five sessions.
Of course, big price swings have been par for the course for DJT stock. But what’s really instructive is the options market, specifically Trump Media’s put/call ratio history. Although a simple arithmetic exercise that showcases the magnitude of put volume compared to call volume, this statistic could be revealing deep anxieties about Trump’s electoral chances — and thus the viability of the business that bears his name.
Taking DJT Stock Dynamics at Face Value
In my usual coverage of options trading dynamics, I’m careful to avoid reading too deeply regarding day-to-day fluctuations. As you know, the options market is a derivative of the underlying security. And because this derivative market features much smaller prices (premiums) than the actual asset prices, the inherent volatility is amplified by the law of small numbers. So, big fluctuations are quite normal.
However, over the long run, the broader trend tells a story. With DJT stock, the initial put/call ratio started out elevated, likely due to skepticism of the company’s fundamental viability. Over time, however, the apparent diminishing of President Joe Biden created positive momentum for the Trump campaign. Heading into and shortly after the debate between Biden and Trump, the ratio stayed deflated.
Still, a shift in momentum was palpable when the president dropped out of the race, allowing Harris to take the mantle. Steadily, the put/call ratio of DJT stock began rising, suggesting that more traders were buying put options than calls — a negative implication. In fact, Barchart shows that the ratio hit a record high of 1.98 on Sept. 19, several days after the infamous debate between Harris and Trump.
To be sure, as more questions began being asked of Harris and her ability to lead under pressure, the put/call ratio declined. That was also when Trump started to take back momentum. However, in recent days, more highly respected polls have started to lean toward Harris. On Monday, the ratio stood at 1.25.
It must be noted that higher put volume relative to calls is not necessarily bearish. For example, institutional investors could be selling puts, which may have bullish implications. Also, sophisticated traders could either buy or sell puts as part of more complicated, multi-leg transactions.
However, here’s why I believe the put/call ratio can be interpreted at face value for DJT stock: Trump Media largely attracts retail traders. And this demographic generally tends to stay with simple debit-based strategies: buying puts or buying calls.
So, if we’re seeing more put volume, it’s probably because sentiment has gone sour.
It’s Been a Great Ride
Obviously, no one has a crystal ball. Anything can happen in this election. What’s more, the result (whatever it may be) might not spell doom or a bonanza for DJT stock. Right now, I’m looking at an average implied volatility of 290.6%. That’s extremely high, well above the historical volatility of 160.03%. The market is not certain of anything except uncertainty.
Still, there might be a feeling that the great ride is coming to an end. In my last article featuring DJT stock, I brought up the idea of leveraging unusual options activity to purchase a bull call spread. The thesis centered around selling a hot ticket and buying a more realistic call option. At the time, the political ecosystem, combined with market dynamics justified the bullish posture.
Now, the winds appear to be blowing against DJT stock, both in the political realm and in the market. If I had to guess, a bear call spread or even a bear put spread may turn out to be the appropriate move. For example, Monday’s unusual options activity screener for DJT shows significant demand for the $54.50 call that expires on Dec. 6, 2024.
One could potentially sell this call as the short leg of a bear call spread. Or, you could be like millions of Americans who are going to sit this one out and potentially watch a train wreck come Wednesday morning.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
