To The Moon

The long-dormant "Trump Trade" is making a fierce comeback. $Trump Media & Technology(DJT)$ has seen its stock skyrocket, with the price soaring over 15.5% on October 16th. At the same time, this "Trump Trade" is pushing Bitcoin and the U.S. dollar higher.

Fueling this surge is news of a major reversal in Trump’s campaign. A recent national poll shows Trump leading Harris with 50% support versus Harris’ 48%, a dramatic shift from September when Harris led 50% to 48%.

Billionaire investor Stanley Druckenmiller, Chairman and CEO of Duquesne Family Office, commented, "The market has already priced in Trump’s victory in next month’s U.S. election. In the past 12 days, the market seems very confident Trump will win."

For investors looking to bet against DJT's climbing stock price, a bear call spread might be a good strategy.

What is a Bear Call Spread?

A bear call spread is an options strategy for when a trader expects the price of an asset to drop over time. It’s a way to bet against the stock while limiting risk.

Here’s how it works: The trader buys a call option with a specific strike price and sells another call option with a lower strike price—both with the same expiration date. This creates a spread that profits when the underlying stock falls, while capping potential losses.

1.Case Study: Shorting DJT with a Bear Call Spread

Let’s break down a specific bear call spread for shorting DJT. Right now, DJT is trading at $29.9, and you believe it will drop to around $20 by November 22. Here’s how you can use the bear call spread to short DJT.

Step 1: Sell a call option expiring on November 22 with a $20 strike price. This gives you a premium of $1,397.

Step 2: Buy a call option with the same expiration date but a higher strike price of $30, which costs you $974.By doing this, you establish the bear call spread.

2..Breakdown of the Bear Call Spread:

- Sell November 22 call option, strike price $20, collect $1,397 in premiums.

- Buy November 22 call option, strike price $30, pay $974 in premiums.

This strategy assumes that DJT won’t rise significantly and may even fall by November 22.

3.Max Profit and Loss

- Max Profit: The maximum profit is the net premium income, which eoccurs if DJT is below $20 at expiration: $1,397−$974=$423

- Max Loss: The maximum loss happens if DJT rises above $30. The loss equals the strike price difference minus the net premium: ($30−$20)×100−$423=$577

4.Strategy Summary:

- Best Case: DJT’s price drops to $20 or lower, and you earn the maximum profit of $423.

- Worst Case: DJT’s price goes above $30, and you face the maximum loss of $577.

- Breakeven: The breakeven point is when DJT’s price is at $24.23.

This strategy limits risk, with a maximum loss of $577. By using a bear call spread, you significantly reduce the risk compared to directly shorting DJT, which would expose you to unlimited losses if the stock price rises sharply.