(NEW YORK) — Cheering on President Donald Trump's failures has rarely been so profitable.
A wall of mostly amateurs who collectively made tens of millions of dollars last month betting that the stock price of his social media business, Truth Social, would continue to fall despite massive purchases by Trump supporters and savages. I would like you to ask this group of strong investors, who are made up of local investors. This fluctuation often reflects the candidate's latest polls, court cases, and rants against Truth Social itself.
Several of these investors interviewed by The Associated Press said their bearish gambles with “put” options and other trading tools were not due to personal feelings toward the former president (most don't like him). He said it was based on his confidence in the former president's dire basic finances. The company made less money last year than the average Wendy's hamburger franchise.
“This company doesn't make money. … It doesn't make sense,” said Elle Stanzi, an advertising executive in Boise, Idaho, who estimates he made $1,300 betting on Trump Media & Technology stock. Wake up early. ”
“This is definitely going to be zero,” said Jeff Cheung, an IT security expert in Seattle.
As of Friday's close, the stock had fallen to $41.54, one month after Trump Media's initial public offering sent its stock price to $66.22. An AP analysis of data from research firms FactSet and S3 Partners shows that investors who used puts and “short sales” have earned at least $200 million in paper profits to date ( (Does not include cost of put, which varies from trade to trade).
Still, amateur traders say most are only risking a few thousand dollars a share and the stock is still too volatile to declare victory. So now, from their office cubicles, kitchen tables, and even bathrooms, they piggyback on other bets to spy on the latest stock movements and make a little money.
There have been plenty of scary moments, including last week when DJT, the former president's initials and stock ticker, soared nearly 40% in two days.
“I don't know which direction stocks are going to go,” said Richard Persaud, a day trader in Schenectady, New York, checking his iPhone during the rally. “Incredibly overrated.”
Many of those interviewed by The Associated Press said there was additional political benefit in knowing their bets helped cut the value of Trump's 65% stake in half. There is. If some of their predictions are correct, they could one day push it to zero, making it impossible for him to pay his expensive legal bills or raise money for a Republican presidential campaign. unknown.
Their road is long. Trump's stock is still worth $4 billion.
Typically, investors who expect stock prices to fall, especially the brave breed of hedge fund traders known as “short sellers,” will do their homework. They pore over financial statements, develop industry expertise, talk to competitors, and even rely on “forensic accountants” to find hidden weaknesses in their books.
In the case of Trump Media, there is no need for that. It's all in the Sarasota, Florida-based company's 100-page financial report. Losses ballooned to $58 million last year, compared to modest revenue of $4 million from advertising and other sources.
As Trump Media's auditors wrote in their report, the losses were so large that they “raise serious questions 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 and another to display the movement of DJT stock and measure how much it's going up or down. can do.
Things weren't looking so good earlier this week.
The legal writer, who lives in suburban Cleveland, had gained about $4,000 in “put” options he had bought in the past few weeks. But the screen that morning showed a group of presumably wealthy investors buying up large amounts of DJT stock, pushing the stock price up again.
“My options are getting less and less valuable by the minute,” Marotta said, adding of DJT: That's insane. ”
Waiting for stock prices to fall is especially painful for short sellers, who pay a fee to borrow stocks owned by others. The idea is to sell it right away, on the hunch that you can buy the same number for much cheaper, before having to return it to the lender later. This allows short sellers to pocket the difference, minus fees, which are usually nominal.
For DJT, fees are never nominal.
As of the beginning of this month, it was costing 565% a year. That means short sellers have just two months before their expected profits are eaten up by fees, even if the stock price goes to zero. According to data from Boston University's Karl Dieser and Wharton's Itamar Drexler, who have studied short selling 20 years ago, this is such an unconventional rate that no stock in recent memory has exceeded it. There are only 3 brands.
Add to that large purchases by Trump supporters who see it as a way to support their candidate, and losses could quickly mount.
“It's scary,” Drexler said, likening buyers of Trump stock to die-hard sports fans. “It's everything you hope the stock market isn't.”
Trump Media spokeswoman Shannon Devine said the company is in a “strong financial position” with $200 million in cash and no debt, and the Associated Press has “selected opponents of President Trump.” said.
Another danger to stock prices is a “short squeeze.” If prices rise sharply, short sellers, fearing they've made a wrong bet, may rush to return borrowed shares quickly to limit their losses. They then start buying stocks to replace the ones they borrowed or sold, but that buying itself tends to work against them and drive up the price, which in turn scares off other short sellers. , they also buy and a vicious cycle of prices begins. hiking.
“If DJT starts going up, it's going to be the culprit for all the trouble,” said Eihor Dusaniowski, a short seller at S3 Partners who has been helping investors borrow stocks for 30 years at Morgan Stanley. “This is not for the faint of heart.”
If that's not enough, DJT stock has one last strange feature that could cause the price to explode up or down.
A “lockup” agreement prohibits President Trump and other DJT executives from selling their company stock until September. So his free float, or the number of shares that others can trade each day, will remain dangerously small at his 29% of total shares, which will one day flood the market. In other words, if you make a big buy or sell on a day when stock prices typically move little, DJT could crash or crash.
Its free float is smaller than most other volatile stocks. At the lowest level, AMC, GameStop, and Shake Shack each had more than double their floats.
Zhang, the Seattle trader, sees DJT's eccentricities as a reason to bet on the stock without hesitation. He predicts that once the lock-up period ends, the former president will actually sell his shares, surprising the market and causing prices to plummet. And even if he doesn't, other insiders whose lockups have expired will fear he will and act quickly to try to get a good price before it falls. .
“The first thing that sells out is going to be most of what we sell,” Cheung said. “Everyone will sell it.”
Still, since he doesn't want to lose money in the meantime, Cheung offsets some of his “put” bets by purchasing “calls.” The latter is also a derivative, but it has the opposite effect, making you profit if the stock price rises. Regardless of which puts or calls are profitable, Cheung hopes to make enough money on one to make up for the losses on the other.
If all this seems too complicated, there is a much easier way to make money betting on playing cards.
Offshore casino-style betting sites are betting on the 2024 election, with some placing President Joe Biden as the favorite.
