Short selling Trump Media stock is incredibly expensive at the moment, with annual financing costs ranging from 750% to 900% of the stock price on Wednesday. Investors looking to sell short would have to see the share price drop significantly to break even. This is due to the fact that many Trump Media shareholders are individual investors who are loyal to former President Donald Trump, making it challenging for short sellers to profit from a potential price drop. Existing short positions in Trump Media were paying costs of 565% annually on Wednesday, making it an extremely expensive stock to borrow.
Despite the high costs associated with short selling Trump Media, there is significant interest from investors hoping to capitalize on a potential price drop. The stock, which has a market capitalization of $6.6 billion despite having just $4.1 million in revenue last year, is seen as overvalued by many in the market. Short sellers aim to profit by selling borrowed shares at a high price and buying them back at a lower price, pocketing the difference. However, if the share price rises, short sellers can suffer losses or be forced to increase collateral.
Trump Media’s stock price surged more than 50% within minutes of trading last week but plunged by 21% after reporting a $58 million loss in 2023. Short sellers see this as an opportunity to profit from an overbought stock and are betting on a significant price drop. The difficulty in borrowing shares for short selling has driven up financing costs and made the stock vulnerable to a potential short squeeze due to limited availability of borrowable shares. Short sellers are in a challenging position due to the reluctance of shareholders to sell their shares and the scarcity of available shares to borrow, creating a risky situation for those looking to capitalize on a potential price drop.
Short sellers in Trump Media are hoping for a 20-plus percent return on their trades, which would require the share price to drop by up to 70% to cover financing costs. The high costs associated with short selling Trump Media make it a challenging trade for many investors, with interest rates at unprecedented levels. Short selling a stock with such high borrowing costs is seen as an extraordinary event in the market, and investors who are able to secure shares for short selling are considered premium clients by their brokers. The scarcity of available shares for short selling, combined with high financing costs, makes Trump Media a lucrative but risky prospect for investors looking to capitalize on a potential price drop.
