The risk is that you’re not betting that a business associated with the Trump cult will become irrational. By selling short, you’re betting that at some point it will stop being irrational and drop to its rational value.
The market is rarely ‘irrational’ in an exploitable way. It only looks irrational in hindsight.
You have to ask yourself: If the market is clearly crazy, why aren’t the institutional investors who feel the same way you do not having a field day shorting the stock?
It’s much smarter to assume that maybe you are lacking some critical information if the market moves in ways you don’t undferstand. And yes, it’s always possible that it’s an irrational bubble, but those bubbles happen because they generally aren’t visible while you are in them, or if they are, predicting when they will break is impossible.
Tesla stock is down to $180 from its highs in the 400’s. The people who shorted Tesla stock years ago might eventually have been right - but they broke themselves first. And Tesla is still trading at multiples no other car company can come close to.
Fortunes have been lost by people thinking they know better than the market. So I have better advice: If you want to trade in individual stocks, pick something in fields where you have intimate knowledge that the general market might not have. Invest for value, not speculation. Do hyour homework.
If you can’t do that, stick to no-load index funds and money markets.
Because it’s very expensive to short this stock:
Trump Media is now the most expensive stock to short in the U.S., according to Bloomberg News. Short-selling, which involves betting that a specific stock will decline, is pricey for Trump’s company because there are few shares available to borrow and there’s high interest in betting against the company, the report noted.
Exactly. The whole point of shorting was originally to make the money before your margin was called. The two transactions would cancel each other out and you were left with a bit of a profit. Much harder to do now that everything is electronic.
The will and determination of those who would like to see him fail is overmatched only by the slavish devotion of those who want to see him succeed. People in between who are thinking they might like to try and profit from this somehow are going to be in over their heads if they try.
Trump’s whole value to the powers that be (people like Putin, McConnell, and the Kochs) is his ability to wreak chaos on everything he touches. He is like water to an electrical circuit, or tritium to a fission reaction. And the same will be true of this. There is no logical way to predict what happens next, because logic flees before him.
Emphasis mine.
In other words, Sam is right, in a way - the market is smarter than you, and does already know about this opportunity, which is why these pther investors have already shorted the stock and driven the price of shorting up.
I think we can all agree that financial markets are great. They’re the best. I once dropped my wallet on the street, and a financial market returned it to me. Minus $40, but still. A friend of mine’s basement flooded and a financial market loaned him his sump pump and gave him a neck massage. What a guy!
So what are financial markets telling us here? DJT closed at $66.22 today: it had a range $62.30-$71.93 (15.5% from low to high) entirely reflecting information developments throughout the day and rational actors acting rationally with great rationality. Multiply shares by the price and you get the market cap, $7.51 billion, for a company with $0.30 billlion of assets, consistent monetary losses, in an industry (microblogging) that has never made consistent profits. That’s what rational actors value it today, because markets always drive out irrational actors.
But wait. The options market gives us an idea what they think the stock price will be worth next fall. That would be $2.50, for a market cap of $280 million, which is only ~3x overvalued, optimistically. The options market is a market too. We shouldn’t favor one financial market over the other - that’s just equity shaming.
Everything is entirely rational. Buying DJT stock is like buying a baseball card - it gives MAGA folk great pleasure. Over $7.4 billion of pleasure (non-monetary). Buying an option in contrast gives pleasure in a monetary sense: that’s what institutional investors are doing. It’s all good.
Why isn’t the difference between the 2 markets -both very happy- arbitraged away? Because it’s difficult to acquire the shares to short them. Why is that? I’m not sure, but I think retail investors are more likely to have cash accounts rather than margin accounts, and the former don’t always lend out their shares. This is speculation. At any rate it’s not unusual for IPOs to be on the hard-to-borrow list, partly because of share lockups.
Or a magnet. Everyone knows that magnets don’t work if they get wet. /s
Love your whole post, but wanted to respond to this.
Stocks being hard to borrow usually comes down to lack of float (overall shares available). You can short Microsoft stock all day because there are a gajillion shares out there* and plenty of institutions willing to lend them out to short sellers. But IPOs as you say generally only float a small portion of the available stock, and other stocks simply don’t have enough float to support shorting.
*TMI alert: In fact, in my trading days, I used to execute complex trades that would allow me to short thousands of shares of companies like MIcrosoft while also selling deep in-the-money puts to neutralize the position. Selling those shares added cash to my clearing firm’s account, so I actually earned interest on the value of the short stock as long as I held the position. Virtually free money, IOW – but impossible if the stock is hard to borrow.
Did anyone follow the recent GameStop (GME) stock kerfuffle? I’ve just heard a little. From what I remember, someone said that GME was shorted too much and that a short squeeze could be created if everyone bought the stock. Everyone followed that advice, the short sellers got squeezed, and the stock shot way up. It didn’t really have anything to do with GME’s fundamentals or anything like that.
I could see the same thing happening with DJT, but to an even greater scale. The MAGA true believers may eagerly dump everything they have into DJT because Trump is their lord and savior. Things like fundamentals, returns, and P/E ratios are irrelevant to them. They’ll buy because they want to show their undying support for Trump. And now they can use their 401k and IRA savings to do it. If someone has an IRA at a firm which allows stock purchases, they can buy individual stocks with their IRA funds. A MAGA person might dump their entire IRA into DJT. Because Trump has so many irrational supporters, I don’t think anyone can really count on this stock acting in a rational way.
That’s pretty risky for everyone. The rank-and-file cultists have a finite amount of money. Once they raid their own retirement accounts and their kids college funds, they’re done. And when the stock starts to drop and they realize they’re about to lose their entire life savings, that’s when the panic selling and the real crash starts. Trump will decree to them not to sell (while he desperately sells off his own position) and the stupidest among them will listen to him and literally lose everything, and still thank him for it. This may well be the most evil thing he’s done.
And that will be the precise moment to go short. Good luck with timing to you all!
The “how” of it is relatively easy. Just go to your banks online brokerage site and request to open a margin account so you can borrow shares to trade against.
For reason’s not to, I would recommend watching the films ‘Dumb Money’ and ‘Trading Places’ to see why you may not want to short a stock (Trading Places was commodities, but the principle still applies).
The irrational exuberance of Trump supporters and traders looking to make money by piggybacking off the irrational exuberance of Trump supporters can drive the price up in the short term for higher and longer than your typical amateur short seller would be able to cover.
I don’t think it makes sense to think of DWAC in the same terms people think of most companies that have IPOs. That is to say, as a business with the long term expectation for continued growth.
I feel like this is more like a short term transaction to raise a bunch of cash for Donald Trump, after which he will work the financial system to ensure he gets to keep most of it, with little regard for what happens to DWAC and its investors.
In addition to the excellent reasons you share, I’ll add this:
If you buy stock, your potential losses are limited. Buy 100 shares of a $60 stock, and the most you can lose is $6000, plus commissions.
If you short stock, your potential losses are unlimited. Short 100 shares of a $60 stock, and you can lose $100 per point up to essentially infinity.
But if you buy a put option, your potential loss is limited to what you paid for the option.
As I said earlier …
True, in theory. In practice an individual investor will receive a margin call when the stock rises such that their collateral no longer covers the minimum and the brokerage may close out any open positions. You won’t take “infinite losses”, but you could be forced to take a loss.
Yes of course, you won’t experience an infinite loss. But I have seen stock prices more than double overnight – due to a takeover, or a drug approval, or other such news – so by the time your brokerage closes your position, your loss could be much larger than what you hoped to make.
Here we are a few days later, and DWAC (aka DJT) as we predicted has collapsed from around $70 per share when we talking about it to about $48 now. While I understand the process better based on the previous discussions, there are bits still dark to me.
First, I do understand there’s no such thing as a 100% safe investment because you can’t for sure predict which way the market will go. However, if you did predict it right, there should have been a way of making money, shouldn’t there? If we had bought DJT 5 days ago (betting it would go up), we’d have lost money, but if we had bought that “April26 40 puts” Akaj mentioned up-thread (betting it would go down), we’d be looking better, but probably would still lose money.
So, assuming that a week ago we knew with absolute certainty that this is what would happen, what was the path to success?
“A strange game. The only winning move is not to play.”
I wish I were too young to get that reference. 
Generally speaking, if you buy puts on a stock and it goes down, you will make money. But option value is also a function of time and volatility. I can’t access the page right now, but last I looked those Apr26 40 puts had actually decreased in value, despite the drop in the stock, due to time passing and volatility easing. (The trade term for this is “decay.”) For options expiring within a short time frame, you really have to be right on the stock direction and the timing.
If you’d bought the Junes that I liked better, you’d be way ahead. 