The calendar says Sept. 5. Officially, it’s 61 days to election day, but unofficially, it’s two months to the 2024 presidential election between Donald Trump and Kamala Harris.
Harris has gained the upper hand in recent polling—the Vice President is ahead nationally by two percentage points—which has had a negative effect on Trump Media & Technology Group (DJT) stock. It’s down 17% in the past week and 37% over the past month.
While the former president is not my cup of tea, DJT stock had an unusually active put option in Wednesday trading, which could allow options traders an opportunity to profit from the man’s media company.
Here are the pros and cons of making this bet.
The Pros of Selling the Oct. 4 Put
DJT stock had one unusually active option in Wednesday trading. As you can see above, it was the Oct. 4 $10 put, with a 2.29 Vol/OI ratio. That’s not a massive amount of action, but enough to bring it to my attention.
If you sell the put, the $0.70 bid price provides an annualized return of nearly 50%, but only if the share price doesn’t fall below $10 at expiration in 30 days. Based on its closing price of $16.98, the put is currently 41% out of the money.
The implied volatility (IV) yesterday for the Oct. 4 put was 208.47%, 3.2 times the stock’s historical volatility (HV), which suggests that options investors believe DJT stock over the next 30 days will have significantly more volatility than the historical norm.
While that might make you think twice about selling the put, it speaks to the reward available for income investors who take a perceived risk and make the bet anyway. Like I said earlier, a 50% annualized return is nothing to sneeze at.
As you might have noticed from its Q2 2024 results, its ad revenue fell 30% to $836,900 from $1.2 million a year earlier. However, the good news is that Trump Media announced it finished testing during the quarter and was ready to scale its CDN (content delivery network).
It officially launched its CDN on Aug. 7.
“The launch of its CDN is part of TMTG's phased rollout of its streaming platform, Truth+. As the Company continues to stress test the streaming service, it next plans to introduce TV streaming on the Android and iOS versions of Truth Social,” the company’s Aug. 7 press release stated.
“In the subsequent phase, the Company plans to introduce streaming apps integrated with the Truth Social platform that will offer cutting-edge features including an interactive 14-day electronic guide, instant catch-up TV on any show broadcast in the previous 7 days, network DVR, video on demand, and more.”
While there’s no guarantee adding the Truth+ streaming platform will open the floodgates for advertising revenue, it positions the company to leverage the social media brand’s content across all the media platforms its users frequent.
Will it do this in the next 30 days? No, it won’t, but at least an update or two between now and October will keep the bears from the door long enough to profit from selling the put.
The Cons of Selling the Oct. 4 Put
Because the put’s IV is over 200% -- it’s 218.97% as I write this in late Thursday morning trading -- there is no question options investors believe the share price can move 40% lower in the next 29 days.
So far today, the Oct. 4 put has seen volume of 137, significantly lower than 820 in yesterday’s trading. The shares are down about 15 cents on the day, and the bid price of $0.75 is an annualized return of nearly 57%.
The challenging part of making this bet is two-fold.
First, the debate takes place next Tuesday, Sept. 10. Just today, Trump and Harris agreed to the rules for the debate in Philadelphia. ABC will host it, and it will use the same rules as the Biden/Trump debate.
In Trump’s favor, ABC will mute the microphones so he can’t slip up and say something that makes him look unpresidential in front of millions of American viewers. However, the vice president is a seasoned prosecutor who knows how to think on her feet. If she wipes the floor with the former president, there is no doubt it will negatively affect his campaign and, by extension, DJT stock.
Secondly, Trump’s lawyers and Special Counsel Jack Smith are in federal court today to determine what happens next regarding the case against the former president for attempting to overturn the 2020 election. He’s charged with four felony counts, which the special counsel revised last week after the Supreme Court ruled he had “some immunity” from criminal prosecution for “official acts” performed while in office.
If today’s court proceedings don’t go Trump’s way, and U.S. District Judge Tanya Chutkan accelerates the trial’s timeline, even if the actual trial doesn’t occur until after the election, that would not be good for the former president and his media company.
The Bottom Line on a DJT Income Play
I’m not a fan of Donald Trump, but that doesn’t mean I can’t be objective about DJT options.
As I look at it, DJT stock hasn’t traded below $10 since October 2021, long before it officially merged with the Digital World SPAC in March. Unless tomorrow's jobs report is so bad that a recession comes into play, I don’t see DJT’s share price falling 40% in the next month.
If you’re risk averse, selling the Oct. 4 put isn’t for you. However, the reward is appropriate if you’re comfortable with above-average volatility and risk. To be safe, you might wait to sell the put until after tomorrow's job report.
On the date of publication, Will Ashworth 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.
