NEW YORK (AP) — Rooting for Donald Trump Failing has rarely been so profitable.
Just ask a group of mostly amateur Wall Street investors who have collectively made tens of millions of dollars over the past month betting that the stock price of their social media company… Social truth — will continue to fall despite heavy buying by Trump loyalists and wild swings that often reflect the candidate’s latest polls, court cases and outbursts on Trump Social itself.
Several of these investors interviewed by The Associated Press say their bearish bets using puts and other trading tools are driven less by their personal feelings about the former president (most don’t like him). not) than by their confidence in the sad underlying finances of the Associated Press. a company that made less money last year than the average Wendy’s hamburger franchise.
“This company doesn’t make money. … It makes no sense,” said Elle Stange, an advertising executive in Boise, Idaho, who estimates she bet $1,300 against Trump Media & Technology stock. “He’s not as great a businessman as he thinks he is. Many of his companies quickly went bankrupt.
Jeff Cheung, an IT security specialist in Seattle, says, “This is guaranteed to reach zero. »
Friday morning, one month after Trump Media’s statement initial public offering sent its stock to $66.22, it plunged to $38.49. An AP analysis of data from research firms FactSet and S3 Partners shows that investors using put options and “short sales” have so far made paper profits of at least $200 million, not including put option costs, which vary from transaction to transaction.
Yet amateur traders, most risking only a few thousand dollars each, say the stock is too volatile to claim victory. So they cash out a little now, letting other bets be made and taking a look at the latest stock movements in the office, at the kitchen table or even on the toilet.
There have been many scary moments, including last week when DJT, the ex-president’s initials and stock symbol, jumped nearly 40% in two days.
“I don’t know which way the stock is going,” says Richard Persaud, a day trader in Schenectady, New York, while checking his iPhone amid the rally. “It’s incredibly overrated.”
Many of those who spoke to the AP say knowing their bets helped halve the value of Trump’s 65% turnout is an added political advantage. If some of their predictions are correct, they could one day reduce it to zero, making it impossible to use it to pay his hefty legal bills or finance his GOP presidential campaign.
They have a long way to go. Trump’s stake is still worth $4 billion.
Normally, investors betting on a stock to decline, especially a plucky breed of hedge fund traders called “short sellers,” will do a lot of work. They will review financial statements, develop expertise in an industry, talk with competitors, and even turn to “forensic accountants” to uncover hidden weaknesses in the books.
No need in the case of Trump Media. It’s all there in the Sarasota, Fla.-based company’s 100-page financial report: a string of losses, $58 million last year, on a tiny $4 million in revenue from advertising and other sources.
The losses are so great, as Trump Media’s auditor wrote in the report, that they “raise substantial doubts about its ability to continue as a going concern.”
A short seller’s dream? Or is it a nightmare?
Amateur trader Manny Marotta has two computer screens at home, one for work, the other showing the movements of DJT stock where he can gauge its rise or fall.
It didn’t look very good at the start of the week.
The legal editor from suburban Cleveland had made about $4,000 on put options purchased in recent weeks. But that morning, the screen showed investors, presumably wealthy, buying large volumes of DJT stock, sending the stock soaring once again.
“My options are worth less with every passing minute,” Marotta says, adding of DJT: “He’s being manipulated. It’s crazy.”
Waiting for stocks to fall is especially painful for “short sellers,” who pay fees to borrow stocks owned by others. The idea is to sell them quickly on a hunch, then they can buy the same number later for much less before having to return them to the lender. This allows short sellers to pocket the difference, minus fees, which are usually nominal.
In the case of DJT, the fees are anything but minimal.
It was costing 565% annually at the start of the month, meaning short sellers had just two months before any profits would be eaten up in fees, even if the stock fell 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 Karl Diether of Boston University and Itamar Drechsler of Wharton, who studied short selling ago. two decades.
Add to that 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 likens Trump stock buyers to die-hard sports fans. “It’s everything you hope for and the stock market isn’t.”
Trump Media spokeswoman Shannon Devine said the company was in a “strong financial position” with $200 million in cash and no debt, and said the AP was “selecting recognized Trump antagonists” .
Another danger for the stock is a short squeeze. If the price rises sharply, it could trigger a rush by short sellers, fearing they have bet wrong, to immediately return borrowed shares and limit their losses. So they start buying stocks to replace the ones they borrowed and sold, and this buying tends to work against them, driving up the price, which in turn scares off other short sellers, who then buy as well. triggering a vicious price cycle. hikes.
“If DJT starts to rally, you’re going to see the mother of all squeezes,” says S3 Partners short-selling expert Ihor Dusaniwsky, who spent three decades at Morgan Stanley helping investors borrow stocks. “These are not for the faint of heart.”
And if that wasn’t enough, there’s one final strange 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. This leaves the float, or the number of shares that can be traded each day by others, at a dangerously tiny 29% of the total shares that will one day flood the market. This means that a large buy or sell on any day that would barely move a typical stock can send DJT flying or crashing.
The float is smaller than most others volatile stocks. At their smallest levels, AMC, GameStock and Shake Shack each had more than double the float.
Cheung, the Seattle trader, sees DJT’s abnormal characteristics as a reason to bet against the stock, without hesitation. At the end of the lockup period, he predicts, the ex-president will actually sell his shares, spooking the market and causing prices to fall sharply. And even if he doesn’t, other insiders whose locks are expiring will fear that he does and will move quickly to get a good price before it drops.
“The first one to sell will be the one that sells the most,” says Cheung. “Everyone is going to sell.”
However, he doesn’t want to lose money in the meantime, so Cheung offsets some of his put bets by buying calls. These are also derivative products, but they do the opposite: they pay off when the stock increases. Cheung hopes that no matter what makes money, whether it’s puts or calls, he’ll make enough with one to more than make up for the loss in the other.
If this all sounds too complicated, there is a much simpler way to make money betting against Trump.
Offshore casino-style betting sites are betting on the 2024 election, and some have even made President Joe Biden the favorite.
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Contact AP’s global investigations team at (email protected) Or https://www.ap.org/tips/
News Source : apnews.com
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