The assassination of Charlie Kirk, a right-wing political activist, occurred during an event at a Utah college, with shots reportedly fired from a roof 200 metres away. The manhunt continues as two suspects have been released, bringing attention to the case.
The incident has impacted the stock market, particularly affecting gun manufacturers’ shares such as Smith & Wesson and Outdoor Holding Company. These stocks experienced a rise following the assassination, driven by speculation around potential stricter gun control measures, which could historically lead to increased gun sales.
Gun Ownership Debate on the Rise
Additionally, the unprovoked murder of a young Ukrainian refugee, Iryna Zarutska, on a train has contributed to public concerns around safety and self-defence in the US. This tragic event has further fueled discussions on gun ownership and sales, with an inclination towards increased demand for personal protection.
Following yesterday’s news, we saw the expected spike in gun manufacturer stocks. For us in the options market, this means implied volatility is now extremely high on names like Smith & Wesson and other outdoor holding companies. This makes buying call options very expensive, as the market is already pricing in a significant move.
We have seen this pattern before, and it is a well-documented market reaction. Looking back, after the tragic Orlando nightclub shooting in 2016, Smith & Wesson’s stock jumped nearly 7% in a single day. The market is now pricing in a similar reaction based on the high-profile nature of this political assassination.
Opportunities and Risks in Market Volatility
With volatility so elevated, we see an opportunity in selling premium rather than buying it. We could consider selling out-of-the-money cash-secured puts on these names, collecting a high premium due to the inflated fear. This strategy profits from the stock staying above our chosen strike price as volatility eventually subsides.
In the coming weeks, we will be closely watching the FBI’s NICS background check data. Historically, we saw massive spikes in this data, a proxy for gun sales, following the 2012 Sandy Hook shooting and again during the uncertainty of 2020, when checks exceeded 39 million. A similar surge now would confirm the thesis and could fuel a second leg up in these stocks.
However, we must also consider that this initial surge is purely speculative. If political momentum for new legislation fails to materialize, as it often has in the past, these stocks could give back their gains quickly. This “buy the rumor, sell the news” scenario is a significant risk for anyone buying in at these inflated prices.
