All of America’s hopes and fears will soon be on display as the Democrats and Republicans hold their virtual conventions during the next two weeks.
The Democrats started Monday, and end Thursday, during which time we should hear from, Joe Biden and Kamala Harris, the presidential and vice-presidential nominees, respectively, about everything that is wrong with the nation, and everything that they can make right.
When the Republicans gather next Monday through Thursday, President Donald Trump and Vice President Mike Pence, will share everything that is right with the nation and everything that can go wrong if they are not re-elected.
The conventions may be pure theater, but it should spark a new wave of trading that will carry investors into the November presidential election. It’s hard to know what secular trends investors may gravitate toward. Will they wager on health-care reform? Will they stick it to big technology stocks like Amazon.com (ticker: AMZN), Apple (AAPL), Microsoft (MSFT) and others? Will they just trade the trend with SPDR S&P 500 ETF (SPY)?
Of course, it is hard to predict what issues or trends may prove to preoccupy the market mob until the November election, it is perhaps better to simply wager on increased trading volumes. If the market mob believes change is coming, or volatility shall increase because of the campaigning and the result of the election, online discount brokers are likely to see increased trading volumes, particularly with the S&P 500 and the Dow Jones Industrial Average up so much since their March lows.
To preposition, consider buying a December $55 call on Interactive Brokers Group (IBKR) that cost $3.15 when the stock was around $52.
If the stock is at $60 at expiration, the call is worth $5. Should the stock be below the strike price at expiration, the trade fails.
During the past 52 weeks, the stock has ranged from $33.70 to $58.50. Shares are up 12% this year, and up 10% over the previous year.
The December expiration was chosen to capture the political hype that will soon cast a shadow over the majority of the remaining year. The expiration also covers any disagreements about the election that could delay its results.
One drawback to trading Interactive Brokers is that it is not actively traded in the options market. Execution prices may suffer in the absence of a deep liquidity pool so be sure to use “limit orders” to protect positions from getting banged around by dealers.
Still, the fundamentals of Interactive Brokers business is reasonably compelling to be worth the liquidity risk. The company is experiencing exceptional customer account growth. In July, the company added 37,000 new accounts, which means that its’ compounded annual growth rate is 50%, according to Rich Repetto, a Piper Sandler, analyst.
Repetto, who is a well-regarded analyst, recently raised his 2020 earnings per share estimate to $2.22 from $1.80, a sign of the power of the Interactive Brokers business model.
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Originally Posted on August 18, 2020 – An Options Trade for Potential Election Chaos
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Barron's and is being posted with its permission. The views expressed in this material are solely those of the author and/or Barron's and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: Options Trading
Options involve risk and are not suitable for all investors. Multiple leg strategies, including spreads, will incur multiple commission charges. For more information read the "Characteristics and Risks of Standardized Options" also known as the options disclosure document (ODD) or visit ibkr.com/occ
