Sunday, 14 April 2024

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Trump Media is the most expensive U.S. stock to short — by far

Trump Media is the most expensive U.S. stock to short — by far

You need a lot of cash — and guts — to short Trump Media stock right now.

Trump Media, which began being publicly traded last week, is now far and away the most expensive U.S. stock to sell short, according to S3 Partners, a leading financial data marketplace platform.

But plenty of people are still willing to pay those steep costs, based on their belief that Trump Media’s share price is bound to fall dramatically from its Wednesday closing of $48.81.

Investors who wanted to borrow Trump Media shares to sell them short on Wednesday would have had to pay annual financing costs of between 750% and 900% of the price of the stock, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

That means a short seller of the DJT ticker who took a position Wednesday would have had to pay costs of between about $1 and $1.22 per day to the lenders.

To break even on a new trade after one month, a short seller would have to see the share price of Trump Media drop by more than $30.

That could be a tough position to be in, given the fact that many of Trump Media’s shareholders are individual investors motivated to buy the stock by their support for former President Donald Trump, the company’s majority shareholder and the highest profile user of its Truth Social app.

Investors who started short selling Trump Media earlier than Wednesday are paying less in costs, which are collected at the end of each month, Dusaniwsky noted. But not that much less.

Existing short positions in Trump Media were paying costs of 565% annually on Wednesday, he said.

For comparison, the average stock borrow financing cost for a short position was just .71%.

“It’s the most expensive stock borrow,” Dusaniwsky said of Trump Media. “Every day the stock has to go down 78 cents just to make up financing costs, just to put you to zero.”

“People are looking for an extraordinary price drop in an extremely short period of time,” he said. “If you’re talking about holding your stock for a month, the stock has to drop by more than a half for this to be profitable.”

Dusaniwsky characterized Trump Media’s short sale financial costs as “extraordinarily rare.”

“This is a ‘black swan’ event,” he said. “As something that’s a legitimate trade, this is way, way, out on the curve.”

The second-most expensive stock to short Wednesday was Canopy Growth, whose short sellers were on the hook for costs of 198% of the stock price annually, according to S3 Partners data.

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