I don’t let my political views get in the way of trading stocks. 

I’ve gone long on Donald Trump-related stocks before and you can read more about that here. 

But now I believe there is a great trade setup for some downside on DWAC, a Trump Pump that went over 17x a few months back in just 2 days. 

I believe that the rally in this stock is over, and it will slowly fade back towards $50 and below. It is for this reason that I sold a bear put spread yesterday morning. DWAC is already working quite well in my favor, and I expect this to continue next week as Friday options games are done with.

Here’s My trade:

DWAC is a Special Acquisition company that announced it had entered into a definitive merger agreement, providing for a business combination that will result in Trump Media & Technology Group becoming a publicly listed company. 

Trump Media & Technology Group’s mission is to create a rival to the liberal media consortium and fight back against the “Big Tech” companies of Silicon Valley, which have used their unilateral power to silence opposing voices in America. 

Trump Media & Technology Group (“TMTG”) will soon be launching a social network, named “TRUTH Social.” 

This news sent the stock soaring from under $10 to $175 at its peak in just 2 days. That is the power of the Donald Pump! Since then, the stock faded off to as low as $40. It has once again found interest in recent weeks, with some buyers stepping in to push the price back over $60.

The Technicals

What’s going on with DWAC?

DWAC is starting to reach overbought RSI values for the first time since the spike higher in October. From a technical point of view, this is looking like the bears are setting up for a push to the downside and trapping the bulls in a false breakout higher. Looking at targets to the downside, I’m thinking the bulls might not step back in until the $50 price level is hit.

The $65 level was a prior resistance area from which the stock went to around $40. Given that I’m bearish on the market as a whole and think that DWAC trades back to $50, buying put spreads when DWAC‘ “filled the gap” yesterday at $65 gave me a great entry at a price I thought the stock was overvalued at and at a previous area of resistance.

The Trade

I bought 50 of the Dec 17 $65 puts and sold 50 of the Dec 17 $50 puts. This type of trade is known as a put spread and is less risky than buying outright puts. I paid a price of $6.50 for each spread, of which I bought 50, representing 5000 shares. If DWAC can trade below $50 I have the potential to have each spread be worth around $15. The stock has already traded more than $6 below my entry price, but I am continuing to let it work towards my $50 target, which I think it will hit sometime next week.

Bottom Line

I keep an eye on stocks that have had significant price moves in the past. DWAC was a supernova that ran 17x in 2days from under $10 to $175. 

I’ve been tracking the stock this week since it’s been in the news and has had a recent runup from $40 to over $60. 

I think the stock is fundamentally overvalued and should trade back to $50 or below. I was patient and waited for the stock to trade into a previous resistance level of $65 and put on a bearish put spread in this area. 

This gives me a great risk/reward trade for my thesis that the stock will trade lower back to $50. The stock is already working in my favor, and I will continue to let it work towards my target of $50.