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Options Trading Lessons From Trump's Presidential Run

Options Trading Lessons From Trump's Presidential Run

Donald Trump (AP Images/John Minchillo)

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Wednesday, 03 August 2016 07:36 AM Current | Bio | Archive

Volatility is the trader’s friend. Will it be the voter’s friend, too? We’re going to find out in the next few months.

I thought about this as I read Chris Arnade’s latest photo essay in The Guardian. Chris travels the U.S. meeting people that the mainstream media ignores: working-class whites in Cleveland, heroin addicts in the Bronx, immigrants crossing into El Paso. His stories are sometimes ugly but always thought-provoking.

One more thing: before he took up photography, Arnade earned a physics Ph.D. and was a 20-year Wall Street currency trader. He’s a smart person who has seen our country from top to bottom.

In a story last May, Arnade applied his number skills to a mystery that still puzzles media elites. “How in the world,” they wonder, “can anyone support Donald Trump?”

The key, say Arnade (complete with mathematical diagrams), is that elites fail to acknowledge we live in a two-tiered system. The U.S. population has upper and lower tiers, defined by education, income, attitude and sometimes race.

Those in the upper tier — which includes many in the elite media — are happy where they are. They see no need to change anything. Those at the bottom are tired of being there.

They want to move up the scale.

This is essentially the same problem traders face all the time. When you’re holding a nice open gain, your main priority is to avoid losing it. You become risk averse.

Conversely, when you’re stuck holding a big loss — especially in options — you want to shake things up. You need volatility and you don’t really care where it comes from.

Volatility is good because it just might pull you out of your nose dive. And if it doesn’t, well, you’re no worse off because you were going to crash anyway.

Elites don’t get this because the system they see is working fine — for them.

Now, if you perceive your choices are either “no chance” or “some chance,” then taking the “some chance” path is perfectly rational. That’s one reason so many people support Trump.

They believe the system can’t get any worse. If Trump breaks it, then maybe we can build a better one.

This thinking mostly makes sense, but it has a major flaw.

Is the country is at rock bottom? No. To use the trading analogy, you can always lose another 100% even when you’re down 99%. Every bad situation can get worse.

The real question is whether a shake-up will help or hurt. We won’t know unless it happens. Then we will get what we asked for — like it or not.

Patrick Watson is an Austin-based financial writer. Follow him on Twitter @PatrickW

To read more of his insights, CLICK HERE NOW.

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Volatility is the trader's friend. Will it be the voter's friend, too? We're going to find out in the next few months.I thought about this as I read Chris Arnade's latest photo essay in The Guardian.
donald trump, options, trading, invest
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2016-36-03
Wednesday, 03 August 2016 07:36 AM
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