NEW YORK (AP) — Rooting for Donald Trump failure has rarely been so profitable.
Just ask a group of mostly amateur Wall Street investors who collectively made tens of millions of dollars last month betting that the stock price of his social media company – Truth Social — will continue to decline despite massive buying by Trump loyalists and wild swings that often reflect the candidate's latest polls, lawsuits and outbursts about Trump Social itself.
Several of these investors interviewed by The Associated Press say their bearish gambles using “put” options and other trading tools are driven less by their personal feelings about the former president (most don't like him) but by their confidence in the dire underlying financial figures of the US economy. a company that made less money last year than the average Wendy's hamburger franchise.
“This company doesn't make any money. … It doesn't make sense,” said Boise, Idaho, ad executive Elle Stange, who estimates she has made $1,300 betting on Trump Media & Technology stock. 'He's not as great a businessman as he thinks. Many of his companies are quickly going bankrupt.”
Seattle IT security specialist Jeff Cheung says, “This is guaranteed to go to zero.”
As of Friday morning, a month after Trump Media's initial public offering sent its stock to $66.22, but has fallen to $38.49. An AP analysis of data from research firms FactSet and S3 Partners shows that investors who use puts and short selling have a year-to-date paper profit of at least $200 million, excluding the costs of puts, which vary from trade to trade .
Still, amateur traders, who usually risk no more than a few thousand dollars, say the stocks are still too volatile to declare victory. So they now cash in a little, let other bets ride and glance at the latest stock movements in the office cubicle, at the kitchen table or even in the toilet.
There have been plenty of scary moments, including last week when DJT, the ex-president's initials and stock price, rose nearly 40% in two days.
“I don't know which way the stock is going,” says Schenectady, N.Y., day trader Richard Persaud, looking at his iPhone amid the surge. “It's so incredibly overrated.”
Many who spoke to the AP say knowing that their bets helped halve the value of Trump's 65% stake is an added political advantage.
If some of their predictions are correct, they may one day bring it to zero, making it impossible for him to tap it to pay his huge legal bills or finance his Republican presidential campaign.
They still have a long way to go. Trump's stake is still worth $4 billion.
Normally, investors who bet on a stock will go down, and an especially brave breed of hedge fund traders called “short sellers” will do a lot of homework. They delve into financial statements, develop expertise in an industry, talk to competitors and even turn to “forensic accountants” to find hidden weaknesses in the books.
In the case of Trump Media, this is not necessary. It's all in the Sarasota, Florida-based company's 100-page financial report: a lot of losses, $58 million last year, on minuscule revenues of $4 million from advertising and other sources.
The losses are so great, as Trump Media's accountant wrote in the report, that they “cast substantial doubt on Trump Media's ability to continue as a going concern.”
Every short seller's dream? Or is it a nightmare?
Amateur trader Manny Marotta has two computer screens at home, one for work and the other showing the movements of DJT stock, where he can gauge how much it is rising or falling. Earlier this week, things weren't looking so good.
The legal writer from suburban Cleveland had made about $4,000 in recent weeks on put options he bought. But the screen that morning showed investors, presumably wealthy, buying large amounts of DJT stock, sending the stock soaring again.
“My options are worth less with every minute,” Marotta says, adding of DJT: “It's being manipulated. It's insane.”
Waiting for the stock price to drop is especially painful for “short sellers,” who pay a fee to borrow shares from others. The idea is to sell them quickly on a hunch so that they can later buy the same quantity much cheaper before having to return them to the lender. This allows short sellers to pocket the difference, minus the fee, which is usually nominal.
In the case of DJT, the compensation is anything but nominal.
At one point earlier this month, it was trading at 565% per year, meaning short sellers had just two months before any gains would be eaten up by fees, even if the stock went to zero. It's a price so extraordinary that only three other stocks in recent history have exceeded it, according to data from Boston University's Karl Diether and Wharton's Itamar Drechsler, who have studied short selling for two decades.
Add to that the massive buying by Trump supporters who see it as a way to support their candidate, and the losses can quickly multiply.
“It's scary,” says Drechsler, likening buyers of Trump's stock to steadfast 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 said the AP was “admittedly selecting Trump antagonists.”
Another danger for the shares is a 'short squeeze'. If the price rises sharply, it could trigger a rush among short sellers who fear they have made a bad bet to immediately return their borrowed shares and cut their losses. And so they start buying shares to replace the shares they borrowed and sold, and that very buying tends to work against them, pushing the price higher, which in turn scares off other short sellers, who then buy too, thus starting a vicious price circle. walks.
“If DJT starts to rise, you'll see the mother of all problems,” said Ihor Dusaniwsky, a short-selling expert at S3 Partners, who spent 30 years at Morgan Stanley helping investors borrow stock. “This is not for the faint of heart.”
And if that's not enough, there's one last strange feature of DJT stock that could cause a price explosion, either up or down.
'Lock-up' agreements ban Trump and other DJT executives from selling their shares until September. That means the float, or the number of shares that can be traded by others each day, remains at a perilously small 29% of the total number of shares that will flood the market in one day. That means a big buy or sell on any day, with little movement on a normal stock, could send DJT flying or crashing.
The float is notoriously smaller than most others volatile stocks. At their smallest levels, AMC, GameStock and Shake Shack each had more than double the float.
Seattle trader Cheung sees DJT's bizarre properties as a reason to bet against the stock, and not shy away. He predicts that when the lock-up period ends, the ex-president will indeed sell his shares, spooking the market and causing the price to fall sharply. And even if he doesn't, other insiders whose lockups expire will fear he will and will move quickly to get a good price before it falls.
“The first one to sell out will make the most,” says Cheung. “Everyone is going to sell.”
Still, he doesn't want to lose money in the meantime, so Cheung offsets some of his put bets with the purchase of calls. The latter are also derivatives, but they do the opposite: they pay off when stock prices rise. Cheung hopes that whatever makes money, the puts or the calls, he will make enough from one to more than make up for the other's losses.
If this all seems too complicated, there is a much easier way to make money betting against Trump. Offshore casino-style gambling sites are betting on the 2024 election, and some have even made President Joe Biden the favorite.
