From a recent article in the Economist (linked, but possibly pay-walled)
Investors in Truth Social, compared with those in other startups, are clearly not relying upon the same sort of analysis or even indulging the same sort of dream. They are not even playing the same game as the very online investors who drove up such meme stocks as amc and GameStop to irrational valuations that were also relative fractions of the paper value of Mr Trump’s company.
Something else is happening here, a tremor in market logic, even a rupture with common sense. Maybe investors believe that Mr Trump will win in November and, as the first president with his own social platform, insist on making all his pronouncements upon it. Maybe they adore him and want to multiply his billions. Whatever their motives, the performance of Mr Trump’s stock so far represents the purest demonstration of his power not just to bend reality, but to convert illusion into reality—and also, maybe, of how Americans are coming to confuse the two.
First, building on the limited float that Cartman cited, insiders are theoretically prevented from selling or hedging their shares for six months from DWAC’s acquisition of Truth Social (and then re-tickered DJT). This runs through late September. There is speculation that the board could waive the lock-up before the full six months lapse.
Second, for somebody who wants to short DJT, “the borrow” is inordinately expensive. The last cost I saw was 400% (annualized). Somebody shorting 1000 shares at $45 would face $180k in annual borrowing costs. On this $45,000 short sale, that’s roughly $3,500 / week in borrow costs. The short-seller is effectively betting that the stock will decline faster than these costs accrue. The borrow cost is volatile — it could go up or down but will likely remain expensive. And there’s a possibility that some short-sellers won’t be able to source “the borrow” required to maintain the position.
Third, option market-makers are momentum buyers and sellers of the stock in hedging their underlying positions, exacerbating moves in each direction.
Fourth, while I can’t believe there are any institutional owners who own the stock on a fundamental basis, there are quantitative trading firms that will buy the stock based on its momentum.
More generally, these momentum factors can be self-reinforcing in both directions. The stock declined from $66 to $22 from late March to mid-April and has now doubled in the past couple of weeks.
Is DJT is a meme stock? Not sure there’s a technical definition for that. I have no doubt that there are individuals who buy the stock because Trump delivered some zinger or he polled well or he’s facing a new lawsuit or they want to punish the shorts or whatever. But I think these factors pale against the trading dynamics referenced above.
At some point, insiders will become motivated sellers to capture their windfall gains. Once that kicks in, the stock will not be able to defy gravity. And it may run out of puff much sooner, as I can’t imagine there’s any prospect of a viable business model. Mainstream advertisers aren’t going to support the platform, and, if Trump’s re-elected, he’ll get 24/7 news coverage that I think would actually degrade the value of his social media platform.
He paid around $1.10, then doubled in at around $0.80, and exited around flat. The put then went to $1.30ish.
Point being, everything associated with DJT is funky because of the float and vol skew. You can make/lose money on the same trade depending on how wild the swings are.
Some other guys I know were selling straddles on the first pump. They made a decent profit when the stock dropped and the vol dropped.
DJT is the combination of two companies. It was Digital World Assets and Truth Social. The two companies combined into one. Combining the two companies gave the stock mojo, so it pumped, dumped, and pumped again (up 10% today).
This is not a GME scenario. I can't find the exact short open interest, but it cannot be that high since Trump owns the vast majority of the shares (> 60% if my memory is accurate) and the company is taking steps to prevent brokerages from lending out shares to short-sellers. (see recent SEC filings.)
This is more of a low-float stock getting bid up by people.
Losing millions of dollars is mostly irrelevant if there is an expectation of profits in the future. That could be the case here: Trump wins in November and he uses Truth Social exclusively for WH communications, driving up traffic and ad revenue. (This is speculation. I have not seen anything stating that this is Trump's plan, it is just the only logical conclusion.)
last week, which was nice of them.
It's frustrating because I cannot find the link. I thought it was WSJ, but my searches are coming up cold.
Key points I recall from the article:
A. There's massive short interest in DJT. (I think they cited one Put metric as the stock would almost need to go to $0 to see a gain)
B. Much of the short interest is coming from individual investors (so inverse of meme stock mania?)
C. There appears to be a push pull between factions buying vs. shorting the stock.
D. The article ended with suggesting a simpler way to bet on the outcome of the election is to...just bet on the outcome of the election!
They have 4M in revenue negative 50M in earnings and 6.3B market cap. That’s 1500x REVENUE multiple.
DJT is not trending on WSB, the normal home of all things meme.