By almost every measure, Trump Media & Technology Group (NASDAQ:DJT) is an unviable business enterprise. Sure, the man behind the brand — former President Donald J. Trump — commands significant attention. Unfortunately, the constant rage-baiting doesn’t make for a sustainable platform. It’s not just an opinion but a matter of financial fact.
In the most recent earnings disclosure for the second quarter, Trump Media posted revenue of $840,000 — an absolutely terrible figure. Not only was the top line 29.4% below the year-ago quarter’s result, the company which owns the Truth Social platform suffered a net loss of $16.37 million. Granted, new entities are given some grace but a sub-million-dollar sales haul is not a good start.
It goes without saying that no analyst is covering DJT stock. It’s also hardly a shocker that multiple technical analysis indicators rate shares a Strong Sell. If we weren’t talking about Donald Trump, DJT likely wouldn’t get anywhere near the attention it garnered. It would be another nameless, faceless penny stock.
However, actively shorting DJT stock comes with it inherent risks. While the equity has tanked more than 22% in the trailing month, it’s liable to pop up unpredictably. Also, DJT’s short interest stands at 20.24% of the float. If the bears get panicked out of their positions, the subsequent act of covering could send shares soaring — a phenomenon known as a short squeeze.
So no, despite every rational instinct, betting against DJT stock doesn’t make sense. However, betting on it without any guardrails makes little sense either. Instead, it’s prudent to consider — if you’re considering DJT at all — a bull put spread.
DJT Stock is a Strategic Punt
Using the jargon of Wall Street, a bull put spread is an example of a net credit vertical options spread. Rather than speculating on a directional wager (and thus paying a net debit), you receive a credit upfront in the hopes that the other party (the buyer of the put) sees their position expire worthless.
To use the language of the average American retail investor, a bull put spread is the equivalent of a strategic punt rather than going for it on fourth-and-one. While you don’t necessarily want to take the ball out of your quarterback’s hands, you also notice that the other team’s offense has difficulty gaining yards when backed into their half of the field.
In other words, implied volatility (at 170% in DJT’s case) is much higher than historical volatility (at 79.1%). Since you’re also playing a home game, punting to the corners would allow your fans’ crowd noise to disrupt the opposing offense. None of these elements guarantee a stop. However, with a high IV relative to HV, you’re incentivized to adopt a credit strategy.
Thanks to the high IV, the credit you receive should be higher than normal. Plus, with DJT stock, it’s impossible to predict where the equity would end up. For example, merely the fact that Trump declared that he won’t sell DJT sent the market value flying.
You need safety cushion when dealing with a volatile entity like Trump Media. The bull put spread gives you that margin to work with.
One Trade to Consider
At any given moment, there could be several bull put spreads to choose from. One particular idea that stood out for me for options expiring Sept. 20, 2024 was as follows:
Sell the $16 put at a bid of 66 cents.
Buy the $14 put at an ask of 24 cents.
The breakeven price sits at $15.58.
Maximum profit is 42 cents per contract (or $42 when multiplied by 100 shares).
Maximum loss is $1.58 per contract (or $158).
Risk-reward ratio is 3.76 to 1 (for every $1 of income earned, $3.76 is at risk).
The idea here is to hope that DJT stock stays above $15.58 and most ideally above the higher strike price of $16. At that point, both puts expire worthless. However, because you already received the net credit of 42 cents (gross credit of 66 cents minus debit paid of 24 cents), you end up the winner.
To be fair, this “punt” still carries risks. Yes, it’s true that when compared to Monday’s closing price of $17.28, traders have a margin of 7.4% to play with. Still, DJT stock also lost about 4% of value yesterday. It’s not inconceivable that another bad day could derail any bullish transaction.
Nevertheless, the Trump factor is that the man enjoys incredible — some would say unprecedented — support. DJT stock could just as easily have good days for the remainder of this week. If you ask me, that would be my guess. However, if I’m going to gamble, I’m going to gamble smartly.
Comments