Well, as a trader I don't get sucked into the world of politics (what's the joke? If you failed in business and acting, there's always politics). They can rant and rave and wave their hands and act important and promise change all they want to. All I ask is that they leave me alone and let me trade.
As a trader, I am not too worried about what's going to be the impact of another election on stocks a year from today. I focus on short-term trades -- a position trade for me lasts weeks, not years. I see this election as a trade setup, pure and simple. Rally into the news; sell after the news. Traders who are not aware of this will see the Republican victories next week, watch the markets gap up on the news, and decide right then and there that it's a good time to buy. I will be on the other side of that trade.
A run up into the elections makes sense, and I would not be surprised to see a gap up the day after the elections (assuming a strong win for the Republicans). That is the news. By noon that day, it will be time to sell the news.
My plan for the rest of this week and into the following week leading into the elections, is to buy in-the-money (delta of 70) call options on dips to support levels on key stocks such as Baidu.com (BIDU - Get Report) and priceline.com (PCLN - Get Report) as well as the SPDR S&P 500 ETF (SPY). All three are strong and currently are not showing signs of fatigue. BIDU has key resistance at $114.00. PCLN is on a tear and does not have much extension resistance until the $380.00 level. And SPY is wide open into the $120.00-$120.30 level. I am looking for the markets to back and fill into the elections, and then post-election surge potentially into these key levels. At this point, on the day after elections, I would dump my call options and then reverse and buy in-the-money (delta of 70) puts.
That is the plan. It is admittedly tough to lay out a specific strategy in trading because it's rare that the markets do exactly what you want or intend for them to do. However, having a plan means that we have put ourselves through key mental visualization techniques. We take the time to picture how we would act and react in specific situations. If the plan unfolds just like we thought -- great. We are prepared and ready to roll. If it doesn't quite work out as planned, we can adapt and adjust the strategy. This is infinitely better than the impulsive gunslingers who shoot from the hip as they react to the day's news headlines. They can certainly make money in the short term (indeed, anyone can make money trading in the short term). What we are interested in is creating a consistent source of income. And this comes from planning.
If the Democrats have an upset win, my plan is to wait and see. If the Republicans have a great night, I know exactly what I'm going to do.
At the time of publication, John Carter held a position in BIDU.
John is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade, which was released in January 2006. Carter has also been featured on ABC Money. He and Hubert Senters founded and run the Trade the Markets web site.
OptionsProfits For actionable options trade ideas from a team of experts, visit TheStreet's OptionsProfits now.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
Check Out Our Best Services for Investors
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.