While certainly the initial euphoria behind the “Trump stocks” has lessened, it most assuredly has not disappeared. Like it or not, the fact remains that Donald Trump is our president and the House and Senate still have a Republican majority.
Infrastructure repair, regulatory reform and commitment to fossil fuels that are hallmarks of the Trump agenda have been somewhat tarnished, but remain a focus over the coming years.
Even after the latest round of ‘Trump leaks’ and drama out of Washington, the markets largely shrugged off fears of an impeachment.
Here are three “Trump bump” stocks that have dropped sharply, but look poised to rebound when the rally resumes.
Trump Stock Options: U.S. Steel (X)
Click to Enlarge United States Steel Corporation (NYSE:X) was one of the biggest benefactors of the initial rally following the Trump win last November. Shares more than doubled in the month following the election, ultimately making a new high at the $41 level. Since then X stock has cratered, giving back nearly all of the hard earned Trump gains.
U.S. Steel is now priced at less than half of the recent highs from just a few months ago. Shares are also hugely oversold on a 14-day RSI basis with readings well below 30. Look for X to find support and regain some of the recent ground lost from the most recent vicious selloff.
An X bull put spread looks like the way to go here. That is, sell the X July $17 puts and buy the X July $15 puts for a 35 cents net credit.
The short $17 strike equates to the major support level at $17 and provides a healthy 13.22% downside cushion to the $19.59 closing price of U.S. Steel. Maximum gain is $35 per spread with maximum risk of $165 per spread. Return on risk is 21%.
Trump Stock Options: JPMorgan Chase (JPM)
Click to Enlarge JPMorgan Chase & Co. (NYSE:JPM), along with the other major banks, had a huge pop following Trump’s White House win. Hopes for meaningful regulatory reform and the repeal of Dodd-Frank provided a tailwind for JPM stock.
The appointment of ex-bankers to key roles in the Trump cabinet, including treasury secretary, lent even more credence to a bank-friendly administration.
JPM exploded higher following the Trump victory: Shares rose more than 30% after breaking out past $70, before ultimately topping out at all-time highs at the $93 level in early March.
Since making new all-time highs, JPM has pulled back sharply. JPMorgan has fallen some 10% in the past few months before bouncing off the critical $83 support level. I expect JPM to hold the $83 support over the coming months, which makes for a solid JPM bull put spread strategy.
Sell the JPM July $80 puts and buy the JPM July $77.50 puts for a 45 cents net credit. The short $80 strike is positioned well below the $83 support level and provides a 5.6% downside cushion to the $84.78 closing price of JPM.
Maximum gain is $45 per spread with maximum risk of $205 per spread. Return on risk is 22%.
Trump Stock Options: Exxon Mobil (XOM)
Click to Enlarge Exxon Mobil Corporation (NYSE:XOM) is actually trading below the levels from Election Day last November. Former ExxonMobil CEO Tillerson was appointed secretary of state, which is assuredly a benefit to both Big Oil generally and Exxon in particular. The recent extension of the OPEC production cuts should also put a floor generally in oil prices.
XOM held the crucial $80.50 support level after being oversold. This level was tested not once, but on four different occasions.
After making a sharp 10% move higher post-election from $83 to $92, shares of ExxonMobil have since fallen back to trade at $81.93, vastly underperforming the overall market. I anticipate XOM to be a relative outperformer over the coming weeks. A XOM bull put spread is a savvy way to prepare for upside.
Accomplish this by selling the XOM July $80 puts while buying the July $77.50 puts for a 50 cents net credit. The short $80 strike is below the key $80.50 support level and provides a 1.3% downside cushion to the $81.93 closing price of ExxonMobil. Maximum gain is $50 per spread with maximum risk of $2.00 per spread. Return on risk is 25%.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the Delta Desk Research Report can email Tim at tbiggam@deltaderivatives.com.
