Trump Media made its trading debut this week, allowing supporters of Donald Trump to show their support by investing in the parent company of the right-wing platform Truth Social. However, this investment is considered risky by financial advisers due to the company’s lack of revenue, profitability, and clear path to sustainability. For detractors of Trump, setting up a short position on the stock may seem appealing, betting that the stock’s value will fall.
Although the short bet on Trump Media may seem like a surefire way to make money given the company’s current state, it may take a long time for the stock to actually fall. In fact, Trump Media is now the most expensive US stock to short, with borrowing rates more than 200 times the average, making it difficult for short sellers to profit off of the stock’s decline. Those who have already taken the risk to short Trump Media are facing significant losses, with shorts recording millions in paper losses on just one day.
Shorting a stock is considered riskier than buying shares outright because the potential losses are unlimited. When you short a stock, you borrow it and sell it high with the hope of buying it back at a lower price to profit off of the difference. However, if the stock price continues to rise, short sellers may face significant losses as they need to replace the borrowed shares at a higher price. Despite the conviction of short sellers that Trump Media’s stock will decline, long shareholders have a more positive view on the company.
Trump Media, trading under the ticker DJT, is considered a meme stock that is not being driven by fundamentals, but rather by a sense of support for Donald Trump. Similar to meme stocks like GameStop and AMC, DJT is experiencing high levels of trading activity based more on emotions and political beliefs than financial analysis. Whether investors choose to go short or long on DJT, it is important to consider that this decision may also be seen as a political statement rather than a purely financial one.
According to Laurence White, an economics professor at NYU, investing in meme stocks like Trump Media typically does not turn out well in the long run. While some investors may believe that these stocks are in a bubble that will eventually burst, it could take a long time for that to happen. In the meantime, short sellers may face expensive borrowing costs and potential losses, while long shareholders are banking on the continued support and optimism surrounding Trump Media. Ultimately, whether investors choose to go short or long on Trump Media, it is important to approach it with caution and be aware of the potential risks involved.
