(NEW YORK) — Rooting for donald trump Failing has rarely been so profitable.
Just ask a resilient group of mostly amateur Wall Street investors who collectively made tens of millions of dollars last month betting that the stock price of their social media business – Social Truth – will continue to fall despite massive purchases by Trump supporters and wild swings that often reflect the candidate’s latest polls, court trials and outbursts about Truth Social itself.
Several of these investors interviewed by the Associated Press say their bearish bets using puts and other trading tools are motivated less by their personal feelings toward the former president (most don’t like him) than by their faith in the regrettable underlying finances of a company that made less money last year than the average Wendy’s burger franchise.
“This company doesn’t make money. … It doesn’t make sense,” said Elle Stange, an advertising executive from Boise, Idaho, who estimates she made $1,300 betting against Trump Media & Technology shares. “He’s not as good a businessman as he thinks he is. up, quickly.”
Says Seattle IT security expert Jeff Cheung: “This is guaranteed to go to zero.”
As of Friday’s close, one month since Trump Media closed Initial public offering sent its shares to $66.22, fell to $41.54. An AP analysis of data from research firms FactSet and S3 Partners shows that investors using puts and “short selling” have made paper profits so far of at least $200 million, not including the costs of the puts. , which vary from negotiation to negotiation.
Still, amateur traders, most risking no more than a few thousand dollars each, say stocks are too volatile to declare victory just yet. So they’re cashing in a little now by letting other bets play out and checking out the latest stock moves from the office cubicle, the kitchen table or even the bathroom.
There have been many scary moments, including last week when DJT, the former president’s initials, and the stock price jumped nearly 40% in two days.
“I don’t know which direction the stock is going,” says Richard Persaud, a day trader in Schenectady, New York, as he checks his iPhone amid the rally. “It’s so unbelievably overvalued.”
Many who spoke to the AP say knowing that their bets helped halve the value of Trump’s 65% stake is an added political benefit. If some of his predictions are correct, someday they could push him to zero, making it impossible for him to leverage it to pay his hefty legal bills or finance his Republican presidential campaign.
They have a long way to go. Trump’s stake is still worth $4 billion.
Typically, investors who bet that a stock will fall, especially a brave breed of hedge fund traders called “short sellers,” will do a lot of homework. They will pore over financial statements, develop expertise in an industry, talk to competitors, and even turn to “forensic accountants” to find hidden weaknesses in the books.
There is no need in the case of Trump Media. It’s all in the Sarasota, Florida-based company’s 100-page financial report: A string of losses, $58 million last year, on minuscule revenue of $4 million from advertising and other sources.
The losses are so large, as Trump Media’s auditor wrote in the report, that they “raise substantial doubts about its ability to continue operating.”
A short seller’s dream? Or is it a nightmare?
Amateur trader Manny Marotta has two computer screens at home, one for work and the other showing DJT stock movements, where he can gauge how much it is going up or down.
It didn’t look so good earlier this week.
The legal writer from suburban Cleveland made about $4,000 on put options purchased in recent weeks. But the screen that morning showed presumably wealthy investors buying large volumes of DJT shares, sending the stock soaring once again.
“My options are worth less with every passing minute,” says Marotta, adding of DJT: “It’s being manipulated. It’s insane.”
Waiting for stocks to fall is especially painful for “short sellers,” who pay a fee to borrow shares owned by others. The idea is to sell them quickly, with the feeling that they will be able to buy the same number later for a much cheaper price, before having to return them to the lender. This allows short sellers to pocket the difference, minus the fee, which is usually nominal.
In the case of DJT, the fee is anything but nominal.
It was costing 565% annually at one point earlier this month, meaning short sellers had just two months before any possible profits would be eaten up in fees, even if the stock went to zero. That’s a rate so out of the ordinary that only three other stocks in recent memory have surpassed it, according to data from Boston University’s Karl Diether and Wharton’s Itamar Drechsler, who studied short selling two decades ago.
Add in the massive purchases by Trump supporters, who see it as a way to support their candidate, and the losses could multiply quickly.
“It’s scary,” says Drechsler, who compares Trump stock buyers to unwavering sports fans. “It’s everything you hope the stock market isn’t.”
Trump Media spokeswoman Shannon Devine said the company is in a “strong financial position,” with $200 million in cash and no debt, and said the AP was “selecting admitted Trump antagonists.”
Another danger for stocks is a “short squeeze”. If the price rises sharply, it could trigger a rush by short sellers, who fear they have bet wrong, to immediately return the borrowed shares and limit their losses. And then they start buying shares to replace the ones they borrowed and sold, and that same buying tends to work against them, driving up the price, which in turn scares other short sellers, who also buy, triggering a vicious cycle of price. hiking.
“If the DJT starts to rise, you will see the biggest pain of all,” says Ihor Dusaniwsky, a short-selling specialist at S3 Partners who spent three decades at Morgan Stanley helping investors borrow stocks. “This is not for the faint of heart.”
And if that weren’t enough, there’s one final eccentric feature of DJT stock that could trigger a price explosion, up or down.
The lock-up agreements prohibit Trump and other DJT executives from selling their shares until September. That leaves the float, or the number of shares that can be traded daily by others, at a dangerously tiny 29% of the total shares that will someday flood the market. This means that a big buy or sell on any given day that would barely move a typical stock could make DJT fly or crash.
The float is smaller than most other notoriously volatile stocks. At their lowest levels, AMC, GameStop and Shake Shack each had more than double the float.
Seattle trader Cheung sees DJT’s strange characteristics as a reason to bet against the stock, and not be intimidated. When the lock-up period ends, he predicts, the former president will actually sell his shares, scaring the market and causing the price to fall drastically. And even if he doesn’t, other insiders whose lock-ups will expire will fear that he will and will act quickly to get a good price before it falls.
“The first one to sell will be the one that earns the most,” says Cheung. “Everyone will sell.”
Still, he doesn’t want to lose money in the meantime, so Cheung is offsetting some of his put bets by buying calls. The latter are also derivatives, but they do the opposite, yielding when the share rises. Cheung hopes that whoever makes money, with puts or calls, will make enough with one to more than offset the loss of the other.
If this all seems too complicated, there is a much simpler way to make money betting against Trump.
Offshore, casino-style betting sites are accepting bets on the 2024 election, and some have even made President Joe Biden the favorite.
This story originally appeared on Time.com read the full story
