What happens if the original owner wants to sell their shares, but their shares are currently lent out to a short seller?
OK, this makes sense to me. The shorters are not likely to all enter the market at once to cash in. Many of them will be waiting for more droppage (and more profit).
The actual owner has to wait until their shares are returned. I believe in such agreements, the borrower has a certain period of time to either return the shares or the value of the shares at the time they were borrowed. Duing the whole Gamestop fiasco, short sellers were in a tizzy because the price of shares were not dropping in a timely manner and many of them were facing the prospect of having to return the shares or pony up some cash.
An article length discussion of short squeezes is here:
Discussion of shorting a stock and buying call options is in the other Truth Social thread.
I"m familiar with a short squeeze - what I was trying to define was sort of the opposite - when a bunch of shorters are buying their borrowed stock back to lock in their profits, and end up firming up the lower end of the price if they all do it at once.
Abstract from 2011 article:
This paper studies the response of arbitrageurs to adverse price shocks. We focus on short sellers and find that they cover their positions after suffering losses and increase them after experiencing gains. While this relationship is very strong for positions established due to perceived overvaluation, it does not hold for arbitrage trades… expected returns do not explain the documented behavior… We interpret these results as evidence that even sophisticated investors cannot or are not willing to maintain positions after adverse market movements, making arbitrage less effective in moving prices towards their fundamental value.
DJT is probably a world all its own, but this paper at least suggests that short seller won’t provide much of a floor, since traders profiting from price declines are more likely to double down against DJT. That said, the authors don’t have the final word on this matter. For one thing, individuals account for only 2% of short sale trades on average - I suspect for DJT the share might be higher. Those wanting a sense of the scientific consensus should read a literature review or textbook.
They’re SOL. The whole idea is that the short seller has borrowed the shares in order to sell them, in the hope of buying them back at a lower price when it’s time to return them. They’re gone.
The original owner may or may not (typically not) be able to demand them back; there’s usually a time period governed by the loan agreement or broker policies.
Exactly this. Any standard short-selling behavior and effect is completely out the window with DJT. Short-selling can help establish a floor when there’s a point at which the stock is undervalued, but there’s no intrinsic value in DJT based on fundamentals. Along with the shortage of shares available for short selling and the general lack of institutional investors, nothing about this will fit any typical patterns.
Is naked short selling illegal now?
ETA: It seems the SEC banned it after the 2008 financial crisis.
So even lending your shares to shorts is a lot of extra risk with a stock like DJT. It’s already lost half it’s value. The person who bought at $70 has lost 1/2 their money. I’m sure the short interest they’re getting is not making up the difference. At this point, wouldn’t the original owners be calling in the loaned stock so they can dump their stock and stop their losses?
It’s my understanding that lenders will always be made whole. Part of the interest you pay to borrow stocks is you are responsible for paying the owner any benefits they would enjoy if they were still holding the stock.
If it’s a common stock, the brokerage will generally just cover it, transferring stocks around, and neither the short seller nor the original owner will have to do anything or even be aware.
OTOH If the brokerage does not own any of the stock and can’t acquire any, or is otherwise unable or unwilling to continue lending shares to the short seller, then they can demand the position be closed and the short seller is on the hook for all of it, often by the end of that business day.
I posted this earlier but yes…which is why it is getting expensive to do this (the lenders see the risk so charge outsized fees to loan the stock to cover that risk):
I’ve no experience in this area. Back in the day, I did a little bit of dabbling in puts and calls and day trading, but I never did any short selling. To the best of my understanding, whether the lender can do this or not depends on the specific terms of the share loan agreement and/or broker policies. My impression is that the loan is usually for a fixed time period. The short seller is of course free to close out their position at any time by buying the stock back, but I believe the lender will generally be constrained by the terms of the contract with respect to when they’re entitled to get their shares back. This is my understanding and those better versed in short selling might want to add or correct anything I got wrong.
Thanks all for the interesting and informative responses!
That 500% number could even be low:
Given the extreme short interest in Trump Media, there could be some parallels. According to data provider S3 Partners, new short sellers need to pay an annualized borrowing fee of 900%, requiring the stock to fall 2.5% every day just to break even.
Best comment in that article:
“This stock goes down any faster, he might have to give it hush money.”
I’ll borrow an expression from Dave Barry’s recent parody of Biblical history:
DJT stock “will go down faster than a two-kopek whore at Ezekiah’s bachelor party”. 
And yet, Trump will make gobs of money on it:
What a bunch of crooks – true Trumpists from top to bottom. Is there anyone even remotely associated with Trump who isn’t a lying, thieving scumbag? Trump: hiring only the best!
Investment firms led by the former CEO of the SPAC that merged with Donald Trump’s media company allege that their files were hacked and stolen by a current member of the media company’s board of directors.
In a federal civil lawsuit filed in South Florida last month, the firms accuse board member Eric Swider [I initially read that as “Swindler”
] of plotting a coup in early 2023 to replace Patrick Orlando as CEO of the special purpose acquisition company, Digital World Acquisition Corp.
As part of that attempted ouster, Swider and others allegedly “stole access” to the firms’ computer systems and then “used the stolen information to attack” Orlando, according to the lawsuit.
It was “an audacious scheme to seize control of and enlarge their holdings,” claims the suit, which was filed by Benessere Investment Group and ARC Global Investments II.
That’s how it’s supposed to work in a normal short selling situation. The idea was always that you thought a stock would tank, when few other people think that. So you tell them you’re betting on a loss of value, and they take that bet, because they think you’re wrong. If you’re right, you make some serious money.
But in this case, every serious stock trader is expecting this stock to tank at some point. Thus, there are probably a lot more short sellers than in a normal situation, and that will distort the short selling market. When the short contracts come due, or the stock falls far enough, a lot of the short sellers are going to be trying to buy back the stock to cover their positions. This probably won’t save TS, but it would prop it up a while longer, and at least some of the short sellers might lose money, even if overall short selling was profitable.