Trump Media & Technology Group (DJT) is a terrifying investment for arguably most market participants. Sure, DJT stock — by gaining almost 158% in the trailing month — appears to be pricing in an electoral victory for former President Donald J. Trump. So, if he loses the race, it could be lights out for the business.
Then again, if Trump wins, it could also spell the end for DJT stock. After all, the real estate tycoon and former reality television star is largely interesting right now because his words command significant influence for the election. He’s the Republican candidate for leader of the free world. Once voting is over, the value of his opinions (at least in the context of social media) becomes akin to a ticket to yesterday’s game.
Nevertheless, the power of “The Donald” is unavoidable. After seesawing violently, DJT stock is now up over 79% for the year. Based on recent sessions, it may still have some room to run. That’s when temptation starts tickling your bones. Is it possible to scalp a quick profit before election day?
For most investors, you are probably better served avoiding DJT stock altogether. It’s just far too volatile. With a 60-month beta of 5.78, it’s exponentially more unpredictable than the benchmark equities index.
Still, it’s hard to get that nagging thought out of your head. I get it. If you really want to speculate on DJT stock, at least do so smartly.
Leveraging the Unusual Options Activity in DJT Stock
With practically the world’s attention focused on Trump and his unconventional campaign strategies, it’s inevitable that people will attempt to profit off his many escapades. Sure enough, DJT stock made the list of Barchart’s unusual options activity screener on Monday.
For clarity, this screener is different from the unusual options volume data that I usually pull up, which is useful for determining the bigger picture. With DJT stock, we know what the bigger picture is — it’s the man himself. Without Trump, Trump Media would simply be relegated to a quickly forgotten enterprise.
Anyways, the activity screener focuses on individual trades (option type and strike price) that are notable for being aberrant compared to prior norms. On Monday, the $31.50 call expiring Oct. 25 (this Friday) was particularly unusual, registering volume of 4,210 contracts. Notably, open interest at the time was only 122 contracts.
Looking at the Friday options chain, it appears that as DJT stock clocks higher, traders begin chasing the security. Presently, the $31.50 call seems to have caught the bulls’ attention (given the lowly open interest). With the stock closing at $31.30 yesterday, buying this call outright isn’t a terrible idea.
Still, you never know what might happen with such an unpredictable asset. If you’re interested in DJT stock, you may want to consider a bull call spread. Now, there are several ideas to choose from. However, the unusual options activity is practically signaling that you should think about selling the $31.50 call.
In the spread, the $31.50 call would represent the second leg. Otherwise known as the credit leg, we would receive income from the sale. Then, we would simultaneously buy a lower strike price call of the same expiration date. A compelling idea to consider for the first leg is the $30 call.
Under this trade, you would be risking $76 for the chance to gain $74. While that doesn’t sound like much, the breakeven price for this setup sits at $30.76. Further, DJT stock only needs to reach $31.50 by expiration to receive the maximum reward.
Why Sell That Call? It’s All About Demand.
Again, DJT stock is a speculative idea: you don’t want to be betting the house on this trade. Nevertheless, anytime you do gamble in the equities space, you always want to take what the market is willing to give you.
As of this writing, the market is willing to give you a premium for the $31.50 call should you decide to sell it. In my opinion, it’s not really something to overthink (if you already decided to speculate). The call is going to expire in less than four trading sessions by the time you’re reading this.
Therefore, if the public money is going to chase a particular call option, the smart play is to sell it and use the proceeds to partially offset the debit of a relatively less-demanded call. And it probably is the public money based on the fact that the $31.50 call didn’t show up in the options flow report, which focuses exclusively on big block transactions.
Subsequently, while everybody else is focused on a longer-odds play, you’re using that “extra” premium to help lower the cost of a more realistic proposition. That from my view is a better approach.
Like I said, DJT stock is super-risky, no doubt about it. But if you’re going to take the risk, do so smartly.
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.
