Since the company that merged with Truth Social is being propped up by Trump cult members, it seems to me that selling it short, if I knew how to do that, would just be free money. It valuation is now something like 1000 times its revenue. Should I figure how to sell short or buy put options or something? Why isn’t everyone already doing that?
Note: I see there’s this thread already open, but I thought this is taking enough of a different tack that it could stand separately. I’m fine to be overridden on that though.
Hah! I remember 10 or so years ago there being a chain of stores that just sold miniature cupcakes. I didn’t find out it was a publicly traded company until after it went bankrupt. Selling that short would have been risk free.
Anyway, if I really thought this was risk free, I’d be figuring out how to do it, not asking questions. So, it’s a good point about irrationality, but … betting against irrationality, especially irrationality at this scale which is rare, still would be a rational thing to do, no? Also, the more people who sell short, the lower the stock price will go (right?), which will hurt Trump and his ilk. Seems like a win-win.
If I’m understanding the process correctly, short interest is certainly an indicator of the market’s faith (or not) in a stock, but since short sellers don’t actually own any stock, they can’t directly influence the price until they buy back the shares to return to whoever they borrowed the shares from (which would actually increase the price).
Also, this stock will certainly be quite volatile, and maintaining a short position isn’t free. You will need to possess a certain percentage of the value of the position as collateral, as well as pay interest on the shares you’ve borrowed. Depending on the size of the position, maintaining it could get extremely expensive while you wait for the stock to crash.
You have to not only bet that the stock price will collapse, you have to bet that it will collapse relatively soon. The people that are propping it up can prop it for quite a long time. If you don’t have the timing right you are screwed.
The big boys can afford to pay the interest. Home investors can’t.
↑ all true. - Damnit; @Loach snuck in, though he’s right, as well; arrow was pointing towards @DCnDC is who I was pointing at
When you short a stock, you essentially sell a stock that you don’t (yet) own. If it tanks, you can then buy it for less than you sold it for & make money. If you have sold it & have to buy it back & the price has gone down to at least a little below your selling price (remember there are fees & interest associated with short selling) then you’re losing money. If you short a stock at $60 & it drops to $59 tomorrow you’d probably make a little if you had bought enough to cover your txn costs; however, if it doesn’t drop to $59 for months or a year, you’d probably end up losing money because it costs something to keep that short open.
Also, for every penny the price goes up you’re losing even more money. How big are your brass ones?
I just posted this in a Politics thread, but it applies here too. Most of us can’t short DWAC or DJT because we can’t borrow it. But we can buy put options – so I did some research:
If you’re not aware, put options give you the right to sell a security at a fixed price on or before a fixed date. Basically, if you think the value of that security is going to go down, you can buy a put option to place a bet on that outcome. If you’re right, you can multiply your money several times over; if you’re wrong, all you lose is the premium you paid for the option.
Most investors buy puts as a hedge against the value of the stock they own. But when a stock is difficult or impossible to short – as DJT is – buying puts is the only way most investors can bet against a stock. The more doubt people have about a stock, the higher the volatility, and the higher the prices on puts will be.
So … DJT put prices aren’t the craziest I’ve ever seen, but they’re pretty crazy. The stock closed at $58 today. Some highlights:
April26 40 puts (sell stock at $40 by April 26) closed at $9.10. So if you think the stock will be below $40 by the end of April, you can buy that put and your break-even would be $30.90 – almost a 50% drop from today’s close in just five weeks.
June21 40 puts (sell stock at $40 by June 21) closed at $16.00, just $7 higher than April but buying you almost two more months. So your break-even would be $24. This seems like a good buy to me.
Sept20 20 puts (sell stock at $20 by Sept. 20) closed at $8.27. So think about that. Six months from now, when DJT can sell his shares, you’re looking at a break-even of $11.73. The stock has to lose 80% of its value for your bet to be a winner.
Sept20 2.5 puts (sell stock at $2.50 by Sept. 20) closed at $0.23. If you think the stock will be worthless in six months, 23 cents will make you $2.27.
As is often the case, I’m glad I asked this here. I have a rudimentary understanding of options … or more accurately, I had a rudimentary understanding 20 years ago when I worked on developing a daytrading application, and now I have a remnant of a rudiment.
So, talk me through this, I want the option of selling DJT for $40 on April 26, so I look out to buy a PUT. Someone in the market then has to agree to pay that $40 on April 26, but wants $9.10 today for me to have that option. On April 26, if DJT can be bought for less than $40, I can exercise my option and I make the difference. If that difference is greater than $9.10 then I’ve made money. If DJT is worth more than $40, then I let the option expire and I’ve lost the $9.10.
What still boggles a little me is how on one side there are people bidding up the stock price and so apparently expect it to keep rising, while others are bidding up the PUT price and so expecting it to crash hard and fast. Something seems not to jibe that my brain can’t quite grasp. Wouldn’t people willing to pay too much for DJT stock also be willing to sell PUTs for too little? Is it just those buying stock and those selling PUTs are different groups of people? Or is it that the stock buyers figure the stock price hasn’t topped out yet and think they can still make some money for a few weeks if they time their sell off right?
Setting aside the real professionals and institutions, by and large option buyers are more sophisticated investors than stock buyers. Note that “sophisticated” doesn’t necessarily mean “smarter”, “wealthier”, or more profitable. Non-pros who short stocks are somewhere in the middle.
I suspect that the retail investors in DWAC / DJT are mostly from the not-sophisticated end of the pool. And are blinded by their love of all things trump.
It might be interesting for you to look at the call futures as well. Comparing the net sentiment on puts and calls over time would give you an idea of how that particular strata of investorly sophistication handicaps the future price trajectory
This is essentially correct, except that the person or institution selling you the put is not necessarily the same person or institution who’ll buy the stock from you. Options are fungible, so anyone who sells one of those puts is obligated to buy the stock at $40 when the option expires, as long as the stock’s price at that time is under $40. (If it’s over $40, whoever sold those puts makes $9.10 in profit.)
Yes. The market makers simply set the option prices based on an algorithm that measures asset value, asset volatility and time until expiration.
Absolutely. Call options (which give the holder the right to buy the asset) are usually priced “in parity” to the puts. (E.g., if the stock were $60, the 60 calls and puts would have the same value.) In the case of DJT, the puts are priced significantly higher than the calls – not so much because people are bearish on the stock, but because it’s nearly impossible to borrow and short. The only reliable way to maintain a short position is to own the puts, so they cost more than they “should.”
Also, I should have added earlier that all option prices should be multiplied by 100, because they give you control over 100 shares. Therefore, $9.10 in the example above is actually $910.
By way of citation, what’s a good source for options data? Broker? Yahoo finance? Or do you need something like a Bloomberg terminal?
Also, to amplify Akaj, to sell shares short, you need to borrow shares from someone (via your broker). When lots of people want to sell shares short, these shares become difficult to borrow. This often happens with IPOs. Brokers keep a hard-to-borrow list and sometimes charge fees for stocks on that list, according to Investopedia.
You can find all the available options via the various checkboxes.
I don’t know why there are two lines for every strike price – they may represent different security deliverables – and I obviously don’t vouch for the information being current or recommend that anyone use this page to inform actual trading decisions.
Not only that, but you can have your short stock “bought in” overnight without prior notice. Has it gone up 50% since you shorted it? Too bad, you’re out the difference.
The only safe, reliable way to take and maintain a short position in a stock like DJT is by buying puts.
I am afraid this is not correct. If you sell something short you have to borrow it first, then sell it, hoping that after you have sold it its price will fall, and then, later, buy it again cheaper if you can, so you make a profit on the difference of what you sold high and what you are buying again cheap. But you have to buy it again, as you have only borrowed the shares you shorted: therefore, you have to give them back. When a stock is highly shortened and the shorties must buy it back that alone can drive the price of an overvalued stock to even loftier valuations. Check what a short squeeze is for details, or the story of Porsche and Volkswagen, a very hurtful short squeeze for many banks involved. Shorting Volkswagen was evidently the sensible thing to do, it was outrageously overvaluated. Boy did the sensible bankers bleed! They did not know that Porsche controlled 74% of the shares, the Federal State of Niedersaxen (Lower Saxony) owned 20%, so only 6% of the total shares were available. But the traders had shorted more than this 6%, which was nowhere to be bought, as it did not exist. The race to buy the remaining available shares to close the short positions was epic.
Still I am sad that there is no put option for DJT available in European markets according to my (so far still limited) research. But just after two days of trading is not the best moment to go short on DJT yet, so I will keep an eye on how things develop. There sure will be a moment when buying a Put Option on DJT will be very lucrative. The question is whether you catch that moment.
When looking at an individual stock, if you can’t understand why it is priced or moving the way it is, the healthy attitude to take is that maybe the market sees something you don’t. Don’t assume the market is ‘stupid’. This is especially true when your decision making is clouded by personal feelings or politics.
I don’t understand the value of Truth Social. But then, I’m not using it and I’m not in their target demographic. I wouldn’t assume that because I think Trump is an ass that all his ventures must fail.
Maybe he gets re-elected and TS becomes the watering hole for half the country.
Maybe he loses election and TS becomes the voice of the ‘resistance’ and 25% of the country uses it heavily. Or maybe the value today is based on the notion that it will become more valuable right before the election and investors plan to dump it then during the hype and froth of election season.
Or maybe there is other real value that institutional investors and others who get information not available to lowly retail investors like me. It’s always something you should keep in the back of your mind when trading stocks as an individual: You are almost always lacking information the big players have. For example, what is the data value of capturing a lot of peolle who may not be captured on the other large social media sites? In the AI era, mass data is worth a lot.
This advice has little to do with Truth Social in particular, but is generally applicable to all stocks but especially meme stocks and stocks making big movements you don’t understand. Assume it’s you who is the ignorant one and keep your money.
I would put this differently. If you want to veer away from vanilla investments like the SP500, the Wilshire 5000, or Treasury securities, you need a theory of the market at a minimum. You need an explanation for why the market is mispricing shares. What are you seeing that the market is not?
Here, the answer is obvious: this is a meme stock bubble. I’m not buying Sam’s example - except insofar as assuming anything is ill advised. Including an assumption of rationality. DJT’s numbers are way beyond fundamentals. But hey, be sure to make the calculations. If you can’t do the math, stick to the sp500. There’s no getting around the fact that DJT trading is inherently speculative.
Can a bubble possibly last through eg next December? Lol: of course it can. The stock could also crater in June. Or July. Or May. Or 2026. Or Elon Musk could buy it and merge it into X. Or Vladimir Putin/Qatar Investments could do something similar. Fun!
Also. Anybody who shorted DWAC, wouldn’t automatically be awarded a short in DJT AFAIK. Oops. So spotting an inefficiency isn’t sufficient. You need to understand the institutions and the mechanics at a sufficiently granular level. See Akaj, upthread. It’s safer to work with options. But then… you need to work with options, which involves some book-learning. Because you need to have a grasp on what the pros can do.
