You need a lot of cash \u2014 and guts \u2014 to short\u00a0Trump Media\u00a0stock right now.<\/p>\n
Trump Media, which began being publicly\u00a0traded\u00a0last week, is now far and away the most expensive U.S.\u00a0stock\u00a0to sell short, according to\u00a0S3 Partners, a leading financial data marketplace platform.<\/p>\n
But plenty of people are still willing to pay those steep costs, based on their belief that Trump Media\u2019s share price is bound to fall dramatically from its Wednesday closing of $48.81.<\/p>\n
Investors who wanted to borrow Trump Media shares to sell them short on Wednesday would have had to pay annual financing costs of between 750% and 900% of the price of the stock, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.<\/p>\n
That means a short seller of the\u00a0DJT\u00a0ticker who took a position Wednesday would have had to pay costs of between about $1 and $1.22 per day to the lenders.<\/p>\n
To break even on a new trade after one month, a short seller would have to see the share price of Trump Media drop by more than $30.<\/p>\n
That could be a tough position to be in, given the fact that many of Trump Media\u2019s shareholders are individual investors motivated to buy the stock by their support for former President\u00a0Donald Trump, the company\u2019s majority shareholder and the highest profile user of its Truth Social app.<\/p>\n
Investors who started short-selling Trump Media earlier than Wednesday are paying less in costs, which are collected at the end of each month, Dusaniwsky noted. But not that much less.<\/p>\n
Existing short positions in Trump Media were paying costs of 565% annually on Wednesday, he said.<\/p>\n
For comparison, the average stock borrow financing cost for a short position was just .71%.<\/p>\n
\u201cIt\u2019s the most expensive stock borrow,\u201d Dusaniwsky said of Trump Media. \u201cEvery day the stock has to go down 78 cents just to make up financing costs, just to put you to zero.\u201d<\/p>\n
\u201cPeople are looking for an extraordinary price drop in an extremely short period of time,\u201d he said. \u201cIf you\u2019re talking about holding your stock for a month, the stock has to drop by more than a half for this to be profitable.\u201d<\/p>\n
Dusaniwsky characterized Trump Media\u2019s short sale financial costs as \u201cextraordinarily rare.\u201d<\/p>\n
\u201cThis is a \u2018black swan\u2019 event,\u201d he said. \u201cAs something that\u2019s a legitimate trade, this is way, way, out on the curve.\u201d<\/p>\n
The second-most expensive stock to short Wednesday was Canopy Growth, whose short sellers were on the hook for costs of 198% of the stock price annually, according to S3 Partners data.<\/p>\n
Short sellers in Beyond Meat, the third-most expensive stock by costs to short, would have paid 79% annually.<\/p>\n
Short sellers are effectively betting that a stock\u2019s price will drop below the price at which they borrowed the shares that they then sold. If the price does fall, they can buy shares to return them to the lenders, pocketing the price difference.<\/p>\n
But if the share price rises, they can be forced into the uncomfortable position of having to buy shares and lose money on the trader or increase the collateral they posted to secure the trade \u2014 a \u201cshort squeeze.\u201d<\/p>\n
As of Wednesday, the short interest in Trump Media \u2014 or the value of shares borrowed for short trades \u2014 was about $255 million. Many of those short positions were acquired in Digital World Acquisition Corp., the publicly traded shell company whose merger in late March with Trump\u2019s social media company led to Trump Media becoming publicly traded.<\/p>\n
In March, short sellers\u2019 positions in DWAC and then in Trump Media were down about $126 million in so-called mark-to-market losses, a drop of nearly 70% for the month.<\/p>\n
Despite that and despite Trump Media\u2019s high cost to sell short, plenty of investors are interested in doing just that.<\/p>\n
They are drawn by the fact that the share price gives it a market capitalization of $6.6 billion despite having just $4.1 million in revenue last year.<\/p>\n
\u201cWhat I\u2019m hearing on the Street is that if [an amount] of stock becomes available, shorts are taking it down,\u201d Dusaniwsky said.<\/p>\n
When Trump Media went public last week, its price skyrocketed by more than 50% percent within the first minutes of trading, to a high of $79.38 per share.<\/p>\n
But on Monday, the share price plunged 21% after Trump Media reported a loss of $58 million in 2023.<\/p>\n
Dusaniwsky said that short sellers in Trump Media were getting into those trades because \u201cthey think this stock is overbought\u201d and that there is a real opportunity to make money from a dramatic price drop.<\/p>\n
Those sellers are \u201choping to make a 20-plus percent return on that trade,\u201d which means the share price would have to fall by up to 70% to cover the financing costs of the trade, he said.<\/p>\n
The investors who can borrow shares from their brokers for a Trump Media short sale are \u201cgood customers\u201d of those brokers, he said.<\/p>\n
\u201cWhen the stock borrow becomes this difficult, only the best clients are getting that,\u201d he said. And the best clients are the ones with the reserves of stock or other collateral to cover their positions, he added.<\/p>\n
But getting shares to borrow to sell short is increasingly difficult. Out of about 5 million shares of Trump Media available to short, 4.94 million have been already borrowed, which drives up the financing costs.<\/p>\n
\u201cThis is now a squeezable stock because the shorts are losing money, the interest rates are so high, and there\u2019s also a recall risk,\u201d Dusaniwsky said, referring to a situation when a broker needs to obtain shares from a short seller to sell for a customer in a long trade position who originally bought the shares on margin.<\/p>\n
Dusaniwsky said short sellers are in a tight spot because many of Trump Media shareholders are not in the mood to sell their shares, and thus drive down the price, and because there are so few shares to borrow and sell short.<\/p>\n<\/p>\n
You need a lot of cash \u2014 and guts \u2014 to short\u00a0Trump Media\u00a0stock right now. Trump Media, which began being publicly\u00a0traded\u00a0last week, is now far and away the most expensive U.S.\u00a0stock\u00a0to sell short, according to\u00a0S3 Partners, a leading financial data marketplace platform. But plenty of people are still willing to pay those steep costs, based […]<\/p>\n","protected":false},"author":0,"featured_media":2843,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-2842","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/2842","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=2842"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/2842\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/2843"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=2842"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=2842"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=2842"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}