Announcements on tap this morning include December's Housing Starts and Building Permits numbers and last month's U.S. Industrial Production and Manufacturing Production data.
As I write this before the markets open on Friday, the futures for the S&P 500 and Nasdaq 100 are up a decent amount, thanks to slightly lower treasury yields.
In Thursday's options trading, 57.44 million contracts traded hands. Anything in the 50-60 million range is about average on any given day.
However, yesterday's unusual options activity generated 971 possibilities. Typically, that number is over 1,000. It's been under 1,000 in three of the four trading days this week. I expect volumes will be below that number for a fourth day.
Nonetheless, it's my job to discuss unusual options activity, and I will do that.
Of the 971 unusually active options yesterday, 22 will expire in 29 days. One of them is Trump Media & Technology Group (DJT), whose controlling shareholder will be inaugurated on Monday as the 47th president of the United States.
Trump Media is a terrible business that likely will never make money. However, if you’re bullish, here’s how I might play the Feb. 14 $30 put.
Have an excellent weekend!
DJT’s Unusually Active Options
The Feb. 14 $30 put wasn’t the only unusually active option for DJT. There were five yesterday, one with a volume over 5,000.
Except for the $30 put, they all expire next Friday, after Trump’s in office and wreaking tariff hell on companies worldwide.
Before I get into the play I’d make if I were bullish about Trump Media, let’s look at the state of the company and its financial situation.
Five Things to Know about Trump Media
1. Most importantly, In the 12 months ended September 30, 2024, it had an operating loss of $143.4 million on $3.1 million in revenue, according to S&P Global Market Intelligence.
2. Like it or not, Wall Street still rules. No analysts cover DJT stock, and that’s unlikely to change until it generates substantially greater revenue, president or no president.
3. It has 1-2 million users, well below its main competitors. As we’ve seen with Twitter/X’s demise, traditional social media is not in a good mental or financial state. There’s no chance it will reach 81 million users anytime soon.
4. The friendly relationship between Elon Musk and Trump is already showing signs of weakening as the world’s richest man becomes more of an irritant than a valuable asset. This relationship will only survive if Musk offers to buy Trump Media for billions more than it’s worth.
5. Deven Nunes remains CEO of Trump Media. I could find a more qualified leader by walking down my street and knocking on doors.
Let’s be clear: This business only breathes air because Donald Trump will be president for the next four years. If he didn’t win, the gig would have been up. It still probably will be barring Musk or some other ally riding to the rescue.
While I wouldn’t touch this stock with a 1o-foot pole, the beauty of the markets is that it accepts all investors, whether delusional or not, and that’s a good thing.
The Play to Make
As I write this, DJT stock trades at $41 before the market opens. The shares should move higher after Trump is officially sworn in.
The company is expected to report quarterly earnings on Feb. 4, before the $30 put expires. I don't think anything in the news will hurt the stock, but there could be good news on the revenue front to help on the upside.
I’ve already highlighted the $30 put. You sell the put for $0.60 premium income, translating into a nearly 19% annualized return [$0.60 bid price / $41 share price * (365/29)].
What’s not to like?
Here’s where you spice things up a bit.
Your first possibility would be to buy one of the two calls from above that expire next Friday. The ask price of the $37 call ($5.50) is a little rich for my taste. However, the $80 call at $0.38 (0.9% of the share price) is a low-risk bet. Based on the 0.05840 delta, a $7.04 (17.2%) move by next Friday could happen given there would be nearly a week of trading post-inauguaration to make it happen.
If you’re genuinely bullish about Trump Media’s long-term prospects, you might do this instead. First, buy 100 shares of DJT stock. Second, sell the $30 Feb. 14 strike discussed earlier, and third, do a covered call with the Feb. 14 $80 call.
You will generate a $0.60 premium from selling the put and $1.05 from selling the call. Based on a $41 share price, your annualized return is 33.9% [$1.65 premium / $41 * (365/28)].
Why not a call strike closer to the share price? You can do that, but this is about what play I would do if I were bullish. If I have to sell the stock, I want to generate a better return on my 100 shares.
You say po-tate-o, and I say po-tat-o.
