Betting against Donald Trump's social media venture, Trump Media & Technology Group Corp., has become one of the market's most challenging and costly short trades, says S3 Partners. The difficulty stems from the high financing costs to borrow shares, exceeding 150% annually, coupled with the stock's meme-like volatility and a dedicated fanbase that could further increase losses for short sellers. Trump Media has emerged as the priciest U.S. stock to short, with short interest surpassing $100 million.
The scarcity of shares available for borrowing and the keen interest in shorting the company, despite its sustained share price gains, make the short trade particularly expensive. Ihor Dusaniwsky of S3 Partners highlights that short sellers are enduring costs over 200 times the average U.S. stock borrow rate, and even more compared to shorting a giant like Apple Inc.
Despite these costs, the bet has yet to pay off for short sellers, with a recent surge in the stock's price inflicting approximately $61 million in paper losses in just one day, totaling $158 million in losses this year. This situation underscores the complexities of borrowing SPAC stocks, where long-oriented shareholders like mutual funds and ETF providers, typically the main sources for stock lending, often hold minimal SPAC positions.
As an alternative to direct short selling, investors are turning to put options to profit from potential declines in the stock's price. This was evident on Tuesday when the volume of put and call options for Trump Media surged to more than five times the 20-day average, particularly for $30 and $50 puts expiring at the week's end.
Trump Media's stock experienced a dramatic 59% jump on its Nasdaq debut, driven by a meme stock frenzy that belies the company's struggling fundamentals. Despite a market valuation exceeding $9 billion, Trump Media has faced significant losses, with $49 million lost in nine months and only $3.4 million in revenue. This speculative environment has led most seasoned investors to steer clear, viewing it as a highly volatile meme stock fueled by Trump's ardent supporters.
Trump's ongoing legal and financial challenges add another layer of complexity to the stock's future. He faces multiple criminal cases and civil damage awards, including a significant $454 million verdict in a civil fraud suit, which could impact his financial standing and, by extension, the performance of Trump Media's stock.
The stock's volatility is expected to continue, influenced as much by Trump's legal and political fortunes as by the company's financial health. This has positioned Trump Media as a quintessential meme stock, attracting attention from both retail traders and short sellers alike.
