Traders are betting millions that Trump’s media will fall| Trending Viral hub

Before former President Donald J. Trump’s social media company made its stock market debut, many investors were lining up to bet on its collapse. After the company the stock price plummeted following an initial increaseThe appetite to bet against stocks has become even more voracious.

Trump Media & Technology Group, which trades under the symbol DJT, fell below $50 a share on Wednesday, extending a sharp decline this week that sent the stock down from its high near $80 and wiped out more than $2 billion. dollars of market value.

Trump Media is the most “shorted” stock in the country, according to financial data firm S3 Partners. Short sellers bet that the price of a stock will fall. They do this by borrowing shares of a company and selling them on the market, hoping to buy them back later at a lower price, before returning the shares to the lender and pocketing the difference as profit.

The demand to short Trump Media, the parent company of social media platform Truth Social, is so great that stock lenders can charge huge fees, making it difficult for short sellers to turn a profit unless the stock fall significantly. Still, there is a lot of interest in accepting the bet.

“They’re expecting this stock to sink and sink very quickly,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.

Before Trump Media went public, it agreed to merge with a shell company, Digital World Acquisition Corporation, which went public in 2021. In the months leading up to the merger, which closed last week, investors also bet heavily against Digital World as a representative of Trump Media.

It was largely a losing trade: This year, the shell company’s shares more than doubled as Trump became the heavy favorite when the Republican presidential candidate and regulators approved the merger.

Last month, traders lost $126 million betting against Trump Media, according to S3.

On Monday, Trump Media published updated financial information, revealing little revenue, large losses and a statement from the company’s independent auditor expressing “substantial doubt” about its financial viability. This seemed to galvanize investors who were betting against the company, as the stock fell from its highs.

But short sellers find it difficult and expensive to trade with Trump Media. The company has approximately 137 million shares, of which only about five million are available to short sellers.

Trump owns about 60 percent of the shares, and company executives also own a portion of the shares. Company insiders tend not to lend their shares to short sellers. Large asset managers like BlackRock, Vanguard and State Street, which regularly lend shares, are not large holders of Trump Media, further limiting supply.

According to S3, of the approximately five million shares available, 4.9 million are already on loan. As with any loan, when stock owners lend their shares to a short seller, they charge a fee, usually expressed as an annual interest rate on the current value of the shares. Typically, the fee for borrowing shares is a fraction of a percentage point. For Trump Media, it has increased to 550 percent, Dusaniwsky said.

Trump Media shares are currently trading at around $50. That means selling it for a month would cost more than $20 per share. For a short seller to break even, the stock price would have to fall by almost half by early May.

There is also another wrinkle. One major trader said much of the short trading was not a direct bet against Trump Media. Since the advent of meme stock trading and the smear of short sellers who win only if popular companies lose, big investors are wary of making such trades.

Instead, the current lawsuit driving the trade is designed to capture the difference between DJT’s share price and outstanding warrants, which will give owners the right to new shares at a fixed price whenever regulators approve the new actions.

Partly because of that uncertainty, those warrants currently trade below $19, with a list of hedge funds as recent holders. Even after accounting for the high cost of borrowing shares, they can still profit from the $30 difference between the existing shares and the value of the warrants, assuming the warrants are registered as shares.

“There are still a lot of people looking to shorten the name,” Dusaniwsky said.

Bold bets can also be seen in the market for stock options, which are derivatives linked to the price of a stock. Options are essentially a contract between two parties who agree on a price to buy or sell a stock before a specific date. Most interest has focused on contracts priced well above or far below the stock’s current level, according to data from CBOE Global Markets, meaning investors are betting on big moves in either direction: way up up or down.

The cost of these options is also very high, said Henry Schwartz, global head of customer engagement, data and access solutions at CBOE. That, he said, could be because part of the investor base is politically motivated rather than economically motivated.

“The price it’s trading at doesn’t make any sense, but price and value don’t have to be related in the short term,” Schwartz said.

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