With no “red wave” or “blue wave” creating a one-party government in Washington D.C., political elites will have to compromise to get anything done. That means that big, sweeping changes are off the table.
That’s good for stocks in general. It’s great for companies that may be sensitive to changes in tax policy. But the real winner? Companies in the healthcare space. There is no political mandate to either greatly increase or decrease the government’s role there.
That’s why the managed-care stocks soared with mostly double-digit returns post-election. We already highlighted this opportunity on Monday with Anthem (ANTM). But the divided government outcome provides investors and traders with more than just a short-term bounce potential in the space.
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Another big potential winner here is Cigna (CI). Although shares rose by nearly 14 percent on Wednesday, the stock is still over 20 percent off its all-time high. Political gridlock nearly guarantees that the company will hit new highs within the next year.
Action to take: This election outcome looks like a great opportunity for a LEAP trade. That’s when we buy a far-out call option to profit from a long-term trend rather than a short-term swing.
In the case of Cigna, traders can buy the January 2022 $230 call. With a bid/ask spread around $23.50, it’s a trade that will move in-the-money as shares push back to their all-time highs. Chances are this trade can offer high double-digit, if not low triple-digit, profits before the middle of 2021.