Wall Street Shocker: The Options Market is Pricing in a Kamala Harris Victory!

By Josh Enomoto

If you’re an investor and a Democrat, the recent news cycle hasn’t been favorable. From the boardroom to the blockchain, market participants have been placing big bets that former President Donald J. Trump will return to the White House. But perhaps no asset has more epitomized the potential ascent of “The Donald” than Trump Media & Technology Group (NASDAQ:DJT).

The enterprise that houses the controversial Truth Social platform, Trump Media has endured a wild ebb and flow. However, its pull — especially among retail investors — is undeniable. 

Since the start of the year, DJT stock soared more than 75%. At the closing peak, shares exchanged hands at over $66. In a world of terrible performances of special purpose acquisition companies (SPACs), DJT is bucking the trend robustly.

Don’t get this wrong, though — Trump Media is a terrible business. Much like his casinos and the “university” that bears his name, the media empire-let will likely endure another ignominious failure. The writing is pretty much on the wall. In the first quarter of 2023, the company posted sales of only $1.12 million. One year later, revenue slipped to $770,000.

Even in its growth phase, Trump Media isn’t growing. However, people have been bidding DJT stock up like mad, demonstrating how much the conservative messaging is resonating with voters and investors.

And that has clearly frustrated the experts at CNN, who have been reporting on the blistering run of DJT stock. While the underlying fundamentals can’t justify the enormous valuation, the stunning rise suggests that traders anticipate a victory for Donald Trump. After all, if he doesn’t win, his Truth Social becomes the sounding board of an election loser — in other words, it becomes completely worthless.

Well, you better sit down for this.

Options Market Predicts a Kamala Harris Victory

While Trump and his campaign team have spent considerable effort criticizing Vice President Kamala Harris’s intelligence, among other characteristics, the American people might not be buying it. In a shocking development, a new Des Moines Register/Mediacom poll has Harris leading Trump by 3 points, 47% to 44%, among Iowa’s likely voters.

Often regarded as one of the best — if not the best — pollster, J. Ann Selzer remarked that Harris “has clearly leaped into a leading position.” But it’s not just Iowan voters that are sensing a seismic shift. It’s the options market — specifically sentiment of DJT stock options — that’s also signaling a “yuge” win for the Democrat.

Essentially, since President Joe Biden made the decision to drop out of the race, sentiment for Trump Media derivatives have turned negative. While Biden was fumbling through press conferences and the lone debate between himself and Trump, the put/call volume ratio of DJT stock had been steadily declining. This indicates that more people were buying call options than puts.

However, since Biden stepped down and Harris stepped up, the dynamic has reversed. Suddenly, the put/call ratio started to move higher, indicating greater demand for puts than calls. The pivot was most evident following the debate between Trump and Harris, when the former candidate made his infamous pet-eating comment.

To be sure, the put/call ratio slipped sometime after the debate, with questions rising about Harris’ capabilities. However, as she weathered the storm and as early voting data appeared to favor the vice president, the ratio again started to rise.

Of course, no one metric should be considered the end-all, be-all of market sentiment. Further, the ratio can be deceptive as both puts and calls can be used in multi-leg transactions that may contradict their native assumptions. To this point, regular retail traders are probably the majority participants of DJT stock. Plus, they tend to engage in simple debit-based strategies; that is, buy calls or puts.

Bottom line: you’re probably not going to find too many complex trades with DJT stock. Therefore, the implications of the put/call ratio can likely be interpreted at face value.

Take Advantage of the Enthusiasm

In my opinion, the truly smart money would look at this data and avoid betting on DJT stock. No matter what, it’s shaping up to be a wild election and that could have unpredictable consequences for Trump Media. However, if you had to take a directional bet on DJT at this hour, your money should probably be on the bearish side.

Still, not everyone is adopting this idea. Indeed, options flow data — which focuses exclusively on big block transactions likely placed by institutional traders — shows that net trade sentiment is firmly on the bullish side of the coin, standing at $2.62 million. Among the most optimistic options include 953 contracts bought of the $50 call expiring Nov. 15 and 338 contracts bought of the $40 call expiring Nov. 22.

As I said earlier, DJT stock is risky and you should probably avoid it. However, if you want to take a shot with money you can afford to lose, you may consider selling these calls as the first (short) leg of a bear call spread. For example, for the Nov. 15 options chain, you could sell the 50C/54.50C spread, which would give you a yield of 12.5%, assuming DJT stays below $50.

For a higher-risk, higher-reward play, you may sell the 40C/50C spread that expires on Nov. 22, which offers a yield of 17.65%, provided DJT stock stays below $40. That would likely be a given if Trump fails to secure victory this coming Tuesday.

Disclaimer: The author did not hold a position in any of the securities mentioned above. The information provided in this article is for educational and informational purposes only and should not be construed as investment advice. Always conduct your own research or consult with a licensed financial professional before making any investment decisions. Past performance is not indicative of future results.