Two Election-Day Plays

The trading is hard to read today. What I thought would be higher on a Romney victory is higher, yet what I thought would be higher in an Obama victory is also higher. Very little outside of U.S. Treasuries is weak today. What this means to me is we better have a clear victor or tomorrow could be painful. Really, I don't know that it matters in the short term who wins as long as someone wins. It could be Alf for all the market cares.

My top two earnings plays for this are Rackspace (RAX) and Cognizant Technology (CTSH). I will say up front that both trades are a bit complex but seem appropriate today. RAX may only have a $5 or $6 move in it, but the downside looks far more appealing to me based on the 12% short interest combined with the big valuation and stumbling of a few competitors. If RAX is going to exceed a $5 move, then I think it is lower. The downside looks to be $60 or even $54, but there is no denying good-sized premiums. I am going to approach this one by shorting calendar-put spreads looking to capitalize from a sharp, quick move lower or reduce potential losses if the move higher is big. I am going long 2x November $65 puts, 1x November $55 puts and selling 1x December $55 put and 2x December $48 puts for around$4.15. A possible hedge here is long the November $70-$75 call spread around $1.10. If I were bullish, that would be my only play, the call spread. I am just going with the put play, but keeping it small....162 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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