So the voters have voted, the Trumpsters are trumpeting, and if you’re a Democrat and an investor, you should be happy. Although we cannot be certain, my crystal ball tells me that a businessman like Donald Trump will be good for American business. That means there may be plenty of upside to the markets going forward, and that there are opportunities for profit in puts and calls.
One of the strategies of my forthcoming stock advisory newsletter, The Liberty Portfolio, is using options (puts and calls) to enhance income, and to take positions in certain sectors based on very specific news items.
Presidential elections are not always market-moving events. However, we have a unique situation with puts and calls because Donald Trump is going to focus on the thing he knows best, which is business.
That has several ramifications for several sectors, and we can use puts and calls to try and take advantage of some of it in certain stocks and exchange-traded funds.
Puts and Calls for a Trump Presidency:Financial SPDR (XLF)
Let’s start with financial services in regards to puts and calls.
What did I say is Donald Trump’s biggest interest? Business. For the past eight years, I’ve been talking to everyone I know in financial services. These are bankers, lenders, borrowers, lawyers and lobbyists. Everybody said that Dodd-Frank had some good protections, but that the compliance requirements cost them a fortune. It curtailed business, especially for lenders who had to deal with CFPB regulations.
I believe Trump will ask Congress to streamline a lot of Dodd-Frank. That means less money spent on compliance, which means money saved by financial services firms, and credit will open up, leading to more business and more earnings for lenders.
Take the Financial Select Sector SPDR Fund (NYSEARCA:XLF). I might consider just buying outright the very inexpensive March 17 $21 calls for 70 cents each. The contract costs a mere 3% of what the shares themselves do.
Puts and Calls for a Trump Presidency: Lockheed Martin (LMT)
Think about what else Donald Trump might find important. You know what is bad for business? Terrorism and global instability. You know what Trump likes to do? Make deals. You can bet he will strike deals with anyone he can, and for those he can’t, if they are bad for business, he will not sit still.
Therefore, you can expect good things from the defense industry.
Take a look at Lockheed Martin Corporation (NYSE:LMT), which is obviously one of the big players in the aerospace and defense industry. It should generate more contracts going forward.
You could do two things as far as puts and calls, because it is expensive at about $255 per share. You could buy the March 17 $255 calls for $11 or better, but that carries some risk if the share price falls, since you could lose the entire investment.
Or you could sell the March 17 $250 naked puts for $11. Then you collect $1,100 and if the stock is put to you, it’s a great stock to own.
Puts and Calls for a Trump Presidency: Energy SPDR (XLE)
If you read my column, you know I am perpetually bullish on fossil fuels and energy.
It’s difficult to say for certain that Trump will push for policies to open up areas that are closed to drilling and exploration, but my sense is that he will make moves in that direction. Again, it’s good for business. It gives us energy independence, so we aren’t dependent on foreign sources for our fuel. It puts people to work.
You can go with many different puts and calls here — on the individual producers for example. Or you could go with an ETF, which I think is the best way to go.
The Energy Select Sector SPDR (ETF) (NYSEARCA:XLE) closed at $70.45 on Wednesday. As for puts and calls, I prefer to sell the March 17 $70 naked puts for $5.10. You collect some good money and hedge the downside a bit if the stock is put to you.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, he has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
