As the U.S. election approaches, $Trump Media & Technology(DJT)$ has become a key stock for investors betting on Trump's chances of winning.
Over the past month, DJT's stock has been on a steady decline. On Tuesday, DJT dropped to $21.33, a new low since the company's SPAC merger. However, on Wednesday, DJT's stock surged 13%, possibly signaling a shift in the election landscape.
DJT's performance is closely tied to Trump's likelihood of winning. Last month, when Trump's popularity surged due to an unexpected attempted shooting event, DJT’s stock spiked 31.37% on July 15, with trading volume increasing significantly.
According to PredictIt, Trump's chances of winning the election have dropped from 69% to 47% over the past month. Meanwhile, polls show Harris gaining a lead over Trump. DJT’s stock has fallen from a high of $40.58 in mid-July to $21.45 on Tuesday, a drop of 47%.
Another factor hurting DJT's stock is insider selling. While regulators have banned insiders from selling shares since March, this restriction will lift on September 20.
1. Why the big rebound on Wednesday?
$Trump Media & Technology(DJT)$ ’s stock jumped over 13% on Wednesday. Investors speculate this may be linked to reports that independent presidential candidate Robert F. Kennedy Jr. might withdraw and support Trump instead.
According to FiveThirtyEight, Kennedy’s support has been around 5%, while Harris leads with 47% and Trump is at 43.7% as of August 20. Kennedy’s exit could boost Trump’s numbers.
With DJT’s stock rising sharply, investors might want to consider shorting opportunities.
2.Selling Call Options Strategy
Selling call options is a trading strategy where the trader sells call options, betting that the underlying asset's price will decline, while the option buyer bets on a price increase.
Two outcomes are possible:
If the price falls, the trade expires worthless, and the seller keeps the premium received from the option. This premium is based on the asset’s market value.
If the price rises, the call option buyer will exercise the option, and the seller will have to cover the difference between the option price and the current market price of the stock.
The strategy behind selling call options is that the stock price will not rise significantly, expecting the stock to either stay flat or decline slightly. If the stock price does not exceed the strike price, the seller earns the entire premium. However, if the stock price exceeds the strike price plus the option premium, the seller starts to incur losses.
3.Example: Selling Call Options on $Trump Media & Technology(DJT)$
Let's use DJT as an example. On August 22, DJT's stock price is $24.20.
If we sell a call option with a strike price of $40, expiring on September 20, with a premium of $0.92. It means we believe DJT will not reach $40 by September 20.
If the stock price is below $40, the investor keeps the full $92 premium.
If the stock price is exactly $40.92, DJT's price is $40 plus the option premium of $0.92, reaching the breakeven point for the investor.
If the stock price is above $40.92, for every $1 increase in the stock price, the investor loses $100, with losses growing as the price rises.
In addition to choosing a strike price higher than the current price, investors can also sell options with a lower strike price to short DJT more aggressively. If DJT falls to the lower strike price, the effect is similar to directly shorting DJT, and the investor can collect more premium.
Comments