Quick election prediction

[dougo]

Recording this here for posterity:

After this coming election, the stock market will go down. I think a Democrat takeover of Congress has already been priced into the market. If they do win both houses, it will come down a little bit due to profit-taking; if they win one house but not the other, it will come down a fair amount, although it might go back up because the market likes governmental gridlock; but if the Republicans keep both houses, it will be a large crash.

I guess this means I should short some stocks, but I'm not a gambler, and more importantly, I have no real idea what I'm talking about. This is just a wild hunch. But it's kind of fun to make public predictions based on wild hunches.

Comments

[wrog]

In terms of straight shorting, futures give you the most bang for the buck. To short the Dow at $10/point using stocks, you'd have to short $120K worth of stock, for which the initial margin requirement is $60K with maintenance around $36K. To get the same position with futures, you sell a single a contract for which the corresponding numbers are $4875 and $3900, respectively.

It's true that options can give you even more leverage but because options expire and you have to pick a strike price, you only really see the big wins when you know/guess-right on when and how far.

On the other hand, after a certain point, more leverage really just means more rope to hang yourself with.