Shorting Trump Media stock right now requires a significant amount of cash and courage. It is currently the most expensive U.S. stock to sell short, with annual financing costs ranging from 750% to 900% of the stock price. To break even after one month, the share price would need to drop by more than $30. Short sellers of Trump Media are betting on a dramatic decrease in share price, driven by the belief that shares are overvalued. However, the high costs associated with short selling make it a risky and expensive endeavor, with investors needing to see a substantial price drop to make a profit.
Many shareholders of Trump Media are individual investors who support former President Donald Trump, the company’s majority shareholder. This loyalty to Trump could make it challenging for short sellers to drive down the share price, as these investors are not likely to sell their shares. Existing short positions in Trump Media have an annual financing cost of 565%, making it a costly trade. The high costs associated with shorting Trump Media are referred to as an “extraordinarily rare” event, as the stock has to decrease significantly just to cover financing costs and break even.
Despite the high cost of short selling Trump Media, there is still significant interest among investors to do so. The company’s market capitalization is much higher than its revenue, leading some to believe that the stock is overvalued. Short sellers are taking advantage of this perceived overvaluation and are betting on a substantial price drop to profit from their trades. Shares of Trump Media have already been heavily borrowed for short trades, reducing the availability of shares for short sellers and driving up financing costs even further.
Since going public last week, Trump Media’s share price has experienced significant volatility. After soaring more than 50% post-merger, the price dropped 21% following reports of significant losses in 2023. Short sellers see an opportunity to profit from the stock’s potential downside, with the hopes of achieving a 20% or higher return on their trades. Borrowing shares for a short sale is becoming increasingly difficult, with the number of available shares dwindling and financing costs rising. The high costs associated with shorting Trump Media, combined with the limited availability of shares, create a challenging and potentially risky environment for short sellers.
Short sellers in Trump Media face the possibility of a short squeeze if the share price rises, forcing them to buy shares at a higher price or increase collateral. The scarcity of available shares for shorting, coupled with the high financing costs, make the stock vulnerable to a short squeeze. Despite these challenges, short sellers are motivated by the belief that Trump Media’s share price is unsustainable, leading to an opportunity for significant profit. The high costs and risks associated with shorting Trump Media make it a uniquely challenging trade, requiring a deep understanding of market dynamics and a high tolerance for risk.
