Trump Media Stock Punishing Short Sellers

Posted on: October 28, 2024, 09:07h. 

Last updated on: October 28, 2024, 09:07h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

With shares of Trump Media & Technology Group (NASDAQ: DJT) — the Republican presidential candidate’s social media company — responding to positive news for the former president in betting market, the resurgent stock is punishing short sellers.

Steve Wynn Donald Trump 2024 odds
Former President Donald Trump during the Sept. 10, 2024, presidential debate in Philadelphia at The National Constitution Center. Shares of Trump Media & Technology Group are surging and unnerving some short sellers in the process. (Image: Getty)

Following a 21.59% gain today on volume that was more than five times the daily, the parent company of Truth Social is up a staggering 221% since the start of this month. That’s making life uncomfortable for traders holding bearish positions in the stock and data confirm there are plenty. Short interest in Trump Media & Technology is 13.18 million, or 17.54% of the freely floating shares, resulting in a short ratio of 0.73 according to Finviz data.

With the stock up more than 51% over the past week and more than 170% since the start of the year, short sellers could be getting nervous. Making matters worse are two factors. First, shares of Trump Media & Technology are expensive to borrow, which is exactly what traders have to do to establish bearish bets.

Second, when short sales are covered, traders have to buy the stock, potentially pouring gasoline onto the fire of a rally.

‘Mother of All Short Squeezes’ Could Be Coming

When traders are forced out of short position in fashion that adds to the stock’s rally, that’s called a short squeeze and a big one could be on the way for Trump Media stock.

Sources told The New York Post’s Charles Gasparino that the “mother of all short squeezes” could be looming for Trump Media shares, potentially fanning the flames of what’s already been an epic near-term rally. Based on the aforementioned short interest of 17.54%, that implies more than $560 million of the stock is sold short.

As The Post reported, insiders including the former president own 57.3% of the social media name and they haven’t sold any stock as of yet, meaning it could be difficult for short sellers to find the selling pressure they need to escape the stock in profitable fashion. That’s an important point because Trump Media insiders are eligible to sell.

As was the case with plenty of gaming stocks, Trump Media & Technology Group went public via a reverse merger with a special purpose acquisition company (SPAC). Trump Media started trading as a standalone entity in March.

Fundamentals Favor Trump Media Shorts

From a fundamental perspective, short sellers were onto something in targeting Trump Media. The company isn’t profitable, its revenue growth is lethargic, and those factors coupled with a market capitalization of $7.48 billion imply the stock is overvalued.

The stock is also volatile. From its March 27 peak to its April 16 trough, it lost about two-thirds of its value before more than doubling in less than a month. It then proceeded to lost more than 75% from early May through mid-September.

Despite Trump Media stock proving responsive to polling data and goings on in political betting markets, The Post noted there’s been little evidence of short covering in recent days, indicating some traders are willing to hold bearish bets on the stock into Election Day on Nov. 5.