There’s been a ton of chatter in the past few months on how to play an Obama Presidency. This blog suggested last month that a Keynesian explosion was on the way. If you’ve been in Oil and Gas, you frankly had to start thinking about a Windfall Profits tax as early as last year. But one trade that’s not been considered is the trade Barack Obama placed. On himself.
Nearly two years ago in early Winter 2007 Barack Obama bought some very cheap LEAP calls on himself, with expiry in January 2009. No one else was buying. Sure, he’d made a splash at the 2004 Democratic convention. And yes, the Clinton’s were irked that he was throwing his hat in the ring. But no one thought he had a shot. (Some of us did, but that’s not the point). He was too young. Too inexperienced. His name was odd. Oh, and he was black. Or was he? While most regarded him as such, some did not regard him as authentically African American. Neither Obama, nor his candidacy, made a lot to sense to many people.
What we know, however, is that Obama himself was more than aware of these hurdles. We also know he was interested in the timing. As every trader knows, the best thesis can go very wrong if the timing’s not right. To this end, Obama took the counsel of a number of wise men in politics. People from Ted Kennedy, to George Will. His thesis was that the timing was perfect, but, that he himself might not be. His question therefore was: could the timing be so perfect, that I simply have to seize it?
The best trades begin with a question. The trade itself is a probe, for the answer. The Obama trade is right up there with those who bought oil at the back end of the curve in 2002, when the curve was still hanging on to its multi-decade backwardation. It’s up there with Paulson and Lahde’s trade, on subprime and mortgages. It was improbable, contrarian, and correct. I regard therefore the Obama trade as one of the greatest trades of the decade. And despite whether you voted for him or not, if you trade, you should too.
-Gregor