We know that when the President-Elect of the USofA tweets about a company, the market reacts. When he tweeted about Boeing, the stock fell 2%. When he tweeted about cutting contracts with Lockheed Martin, the company’s stock went as much as 5% in the red.
An app called Trigger recently added a “Trump trigger” which “gives you the ability to trade stocks based off of Trump’s tweets about public companies”. It got a ton of press. Like, a lot! Which got me thinking. Is there really an arbitrage opportunity here? Can we really make money off of Trump’s tweets?
The idea is to buy (go long) or to sell (go short) a company when Trump tweets about this company favorably or critically. But for this to be an arbitrage, our buy or sell would need to happen before the market reacts. Now, individual investors are up against big firms with expensive (and access-restricted) data sources and we know they are already making money off of Trump tweets. So the questions becomes “is there enough time between Trump’s tweet and the market reaction” for us to react?
Side note: This analysis is born out of my curiosity. I am not a fan of reactive investing and do not advise you to actually trade based on Trump’s tweets. But if you do, let me know how that goes.
I’d like to make some assumptions here. First, you have a brokerage account which lets you trade pre-market and after-hours (some of Trump’s tweets fall in those hours). Second, I’ll assume that on average it takes us (humans) two minutes to react to the tweet (extremely conservative). Third, all times are Eastern Standard Time (EST).
So what we are looking for is the time delta between trump’s tweet and price change (market reaction). If this is less than two minutes (two candles on a minute-chart), we can make money.
So, after going through some of his tweets, here’s the summary in a beautiful table:
So no. Not much opportunity there. The only way I can explain this is that a lot of big investors are already trading on Trump’s tweets algorithmically.
“There are people diligently working to create algorithms for Trump’s tweets, and if he continues to increase the size of the data set then we’ll likely see full automation sooner than later,” said Zachary David, a senior analyst at KOR Group. (Source)
Of course you could write your own automation and try to scrape pennies. My only advice to you would be this:
Please don't put your money on the mercy of a lunatic. https://t.co/DzjpkAu2wx— karan goel 🕺 (@karangoel) January 4, 2017