- Written by OptionDave
In one of the most highly contested elections in United States history, the results are in and Donald Trump is primed to be the next President. No, this is not a political forum, so we are not about to talk politics. Instead, we will do what we always do here at ETNtrade; let's talk about how we can profit from this information.
Typically, when a Republican is elected to the Presidency, stocks drop. That did not happen in this case. Why? Is it because for the first time in history, the President-Elect is a PURE businessman (yes the Bush's were businessmen prior to entering politics but they were indeed politicians as well). Maybe the Market is simply going up on the rumor, just to be ready to sell off on the news. Or, maybe this is a sign of what is to come and the future is bright. Instead of asking why, let's ask... "What is next"!
Two sectors that I have my eyes on closely are Defense and Financials. Let's start with Defense. Already, rumors have it that Trump is highly critical of many of the deals currently in place for defense spending, such as Boeing's deal to build the F-35 fighter jets. If he can successfully negotiate down those deals, outsource them to other companies, or maybe insource them, what will that mean for companies like Boeing, Halliburton, Lockheed Martin, etc.? I think there is a beautiful short opportunity here and we will all be kicking ourselves if we stay too blind to take advantage of it.
The other sector I mentioned is the Financials. Obviously, the elephant in the room is the FOMC. Will they raise rates or not. How would that effect stocks? Well, it all has more to do with future spending/ cost of spending than anything else. The one sector most vulnerable is the Financial Sector. Cost of borrowing can be a double edged sword for the Financials, as it cost more for them to borrow yet they collect more on their loans, but if you look at the charts, it is hard to make an argument for anything but a glaring downside. The only question is... WHEN?
So that leaves us with the Market itself. Personally, I am hedged for a Market Selloff. It will happen, but knowing when is half the battle when it comes to trading options. The best bet right now would be January Week 4 options. Buying Puts, Put Spreads, Put Flys, etc. using that expiration will allow one additional week past Trump's inauguration. That should be enough time to give the markets a chance to react. There will be two FOMC meetings between now and then and that too could help. Holiday numbers will be out, and I only see AMZN being a winner this holiday (their percentage of overall sales so far is staggering).
While I do not give specific advice, and this is not intended to be such, I am very excited about my downside trades on XLF (Financial ETF), BA (Boeing), HAL (Halliburton), LM (Lockheed Martin), and DIA (DJIA ETF). Using Out-of-the-Money Put Spreads make these trades very affordable, super profitable (over 200% return minimum), and very probable given all that is surrounding them. I look forward to checking back in with you all in January with some results. Until then, just remember that there are three types of people: those that make things happen, those that watch things happen, and those that say “what happened”. Which one will you be?
Happy Holidays everyone, have a great New Year, and let's make 2017 out BEST YEAR EVER!