Trump Media becomes the costliest US stock to bet against

Trump Media becomes the costliest US stock to bet against

(Bloomberg) — Betting against former President Donald Trump’s social media startup is one of the most difficult and expensive short trades on the market, according to financial analytics firm S3 Partners.

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Investors tempted to bet against Trump Media & Technology Group Corp. face annual financing costs to borrow the stock of more than 150%, and risks that the stock’s very volatile nature and loyal fan base could burn them even more. The newly listed company is the most expensive U.S. stock to bet on, with more than $100 million in short interest, according to S3 data.

Short trades are costly in part because there is a small amount of stock available to borrow and a strong incentive to bet against the company as the stock holds its gains, according to Ihor Dusaniwsky, managing director of analysis predictive at S3 Partners.

“With short sellers staying in this trade even paying more than 200 times the average stock borrowing rate for a short trade in the United States, and more than 300 times to sell short” a company like Apple Inc., many people are betting that a near-future decline in Trump Media’s stock price is due, Dusaniwsky said.

Read more: Most Popular DWAC Option Eyes 95% Drop Over Next Month

But so far, it’s been a losing bet. Tuesday’s surge alone cost short sellers some $61 million on paper, bringing mark-to-market losses to $158 million this year for investors who flocked to bet against the stock. blank check vehicle that took Trump Media public, according to S3.

Borrowing SPAC stock is particularly tricky because shareholders oriented toward buying stocks, such as mutual fund and ETF providers – the source of much of the stock available for loan – n They often don’t have significant SPAC positions.

Investors looking to bet against stocks that are hard to short can buy puts as an alternative, to profit if the stock falls. Options contracts on Trump Media were soaring Tuesday, with midday selling and calling volume more than five times the full-day average over the past 20 days, according to data compiled by Bloomberg. Among the most actively traded contracts were the $30 and $50 puts expiring Friday.

Stock racing meme

The stock jumped 59% in its debut Tuesday on the Nasdaq after the deal to take on the unprofitable company behind Truth Social Public capped a stunning stock market run and provided a paper windfall for Trump as he faces to a growing series of legal proceedings. and financial difficulties.

A market valuation of more than $9 billion contrasts with Trump Media’s fundamentals: the company has so far struggled to generate profits, losing $49 million in the nine months to September while generating just $3 .4 million dollars in revenue.

Read more: Trump media hit by volatility in post-SPAC deal debut

Despite this, most experienced investors choose to stay away, according to a survey of five activist short sellers.

“I wouldn’t go near it,” said Anne Stevenson-Yang, co-founder and director of research at short seller J Capital Research Ltd. “It’s a crazy meme title that’s being pumped by Trump fanboys.”

Trump is entangled in a web of legal problems that could result in a series of damaging lawsuits and rulings on top of huge damages awards as he campaigns for the White House.

He faces four criminal cases, including two alleging he conspired to overturn the outcome of the 2020 presidential election, as well as two civil damages awarded against him this year exceeding half a billion dollars.

Trump’s biggest financial threat comes from the $454 million verdict against him in a civil fraud suit for inflating the value of his assets by billions of dollars a year. He was ordered to pay a reduced bail of $175 million by April 4 while he appeals, but he will have to pay the full $454 million, plus interest, if his appeal fails.

Read more: Following Trump and his trials: A timeline of court dates

While the deal has become a political lightning rod, retail traders have embraced Trump Media and its stated mission to fight big tech companies like Meta Platforms Inc., Netflix Inc. and Elon Musk’s The merger’s winding, multi-year path to completion triggered a wave of skepticism across much of Wall Street. The crowd of meme stock traders helped push stocks higher, touting gains on Trump Media’s Truth Social platform and Reddit Inc’s WallStreetBets forum.

“It may be the quintessential meme stock,” said Usha Rodrigues, a professor of corporate law at the University of Georgia Law School. “It will be volatile, and its volatility will depend on Trump’s behavior and prospects at least as much as on his fundamentals.”

–With help from Angela Moon, Elena Popina and David Marino.

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