Trading After The Presidential Election

The aftermath of the election

The presidential election is over, so it is safe to start trading again?

First of all, as of writing this, we actually don’t know yet who has won the Presidential Election.

As of this morning Biden leads Trump in the Electoral College 264-214, and we are waiting for an update to see who won Nevada.

If Biden wins Nevada, this will give him 270 electoral votes exactly enough to win the presidency.

trading after the presidential election

The Trump campaign has also filed lawsuits against the states of Pennsylvania, Michigan, Nevada, and Georgia as the race to 270 looks to be nearing its end.

As of now, it is still a close race. We won’t have any updates until later today, as Nevada basically said yesterday:

“You know what, we’ll keep counting, but stop bothering us, we’ll let you know tomorrow around noon. Until then we will not publish any more results.”

So we will see what is happening there soon.

Looking back to last week, the markets were a little bit worried about a so-called “blue wave.” This means the Democrats would control both the House of Representatives, and The Senate.

house of representatives election trading

What it comes down to is, how is power being distributed? As of right now, it seems that the Senate COULD remain Republican.

However, we’re not quite sure yet. As you can see, it is very close, but it doesn’t seem that we have this “blue wave” that the markets were fearing.

senate election trading

As for The House of Representatives, it seems that it likely to remain Democratic.

So we still don’t know for sure who will control The House, The Senate, or win the Presidency. It’s still a close race.

There’s still a lot of “would of, could of” and speculation as far as what will happen if Trump stays in office, or if Biden takes over.

How is the election affecting the markets & traders?

Yesterday morning, the day after the election, the markets were rallying big before pulling back a little bit.

presidential election affecting trading

The DJI was up more than 900 points. As you can see it was shooting up that morning, before pulling back before the close.

market reaction to presidential election

The S&P 500 was up 2.37% and its the same picture here, jumping up before retracing

traders reaction to presidential election

The NASDAQ was the leader of that day towards the close. Up 4.2% and as high as 5% earlier in the day.

What is causing this?

As I mentioned, looking at the election results so far, there doesn’t seem to be a “blue wave” coming.

This means that there is a division of the powers and not everything in the hand of one party. This is what traders and the markets are looking for right now.

A division of the powers could mean less regulations on ‘Big Tech’. This is why yesterday, the day after the election we saw big jumps in companies AAPL, AMZN, GOOG, etc.

AMZN was up 6% near the close. AAPL was up over 5% and finished up over 4%. NFLX closed up almost 2%, FB closed up almost 8%, and GOOG and MSFT both closed up almost 6%.

This is why The NASDAQ was leading the way higher, when before it was lagging behind The S&P 500 and The DJI.

News from the election that is affecting the markets

In California, voters pushed for Prop. 22. This will allow UBER and LYFT to keep classifying their drivers as independent contractors instead of employees.

This was a big win for both companies resulting in both companies being up almost 12% and 13%.

daily new cases

Another thing on trader’s minds, is the stimulus deal (or lack of one).

Recently, Senate majority leader Mitch McConnell said that a stimulus package should be passed by the end of the year.

This is what market participants were waiting for, as new cases for the Coronavirus continue to rise.

We are up to almost 95,000 new cases of Covid-19 a day, and Dr. Fauci has said that we are positioned really badly as we head into Flu season.

It’s important to keep in mind that uncertainty could creep back into the markets as the Trump Campaign is calling for lawsuits, and as new Covid-19 cases continue to rise.

Is it safe to trade after the presidential election?

The key question is, “How do we trade this?”

Before the election, I said that we should all sit on our hands. For those of you trading The Wheel Strategy, we had an opportunity, on election day, to close out a TQQQ 100 put that I sold.

This is the ONLY position that I had going into the election. I sold this put last Thursday and I was able to buy it back on election day, for a nice profit of about $250, after only being in the position for 5 days.

tqqq chart

Now, the next morning when I saw the markets were up, I thought that after the initial excitement we would fill the gap.

After we saw that we might not have any results from the election for a few days I thought we would hover where we opened at around $133 or maybe lower.

Instead, we went higher so here’s what I did. I sold a call with a strike price of 148. I sold this call for $2.45 which means I took in another $245 in premium.

My break-even price on this trade was around $132. At one point I was down $3,000 but I just kept selling more premium according to the rules of The Wheel Strategy.

Overall I’ve realized $2,300 by selling premium. If I would have closed out the trade right then, I would have closed it with a profit, but I didn’t plan to do that just yet.

Should TQQQ keep dropping, I will be able to buy back the call that I sold against my shares.

If my shares are “called away” I would lose $200 of the premium I earned, but would still be up over $2000 on this trade.

I checked this position yesterday and it started the day up $1,400, and this is the only position I am in. For now, I am not taking making any other trades. I may start trading again later this week, but for now, I’m just going to sit on my hands.

ndx
sdx

As you can see the markets are still rather flat, trending sideways, as market participants are waiting for the final results of the election to come in.

Trading After The Presidential Election Summary

Whether you like what’s happening with the election so far, or whether you will like the final results of the election or not, as traders it is our jobs to react to this and make the best out of it by adjusting our trading strategies.

With still a lot of uncertainty looming, I recommend sitting back and waiting to take any new positions until the air clears.

There is a saying among sailors: “You can’t change the wind, but you can adjust your sails.”

If you found this article on trading after the presidential election helpful, leave a comment below.

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