In recent times, there’s been an increasing sense of skepticism surrounding former US President Donald Trump’s latest venture in social media, the Trump Media & Technology Group (TMTG). Investors who are skeptical about the stability and success of this initiative might consider betting against it. However, doing so could come at a high price. Here’s why.
Contentious Commodity
The Trump Media & Technology Group’s stock, traded under the Digital World Acquisition Corp. (DWAC), has made quite a splash in the stock market since its announcement. It saw a whopping 357% surge, with shares rocketing from $10 to $45.50 in a day. Although, the stock has seen a highly volatile trajectory, raising eyebrows about its long-term potential.
For naysayers who are hoping to cash in on the skepticism surrounding DWAC, short-selling seems to be the most plausible method. Short-selling is an investment strategy that bets on a stock’s decline by borrowing shares to sell high, then buying back when the price drops to return them and pocket the difference. However, short-selling is not without its risks, and these risks are particularly salient when dealing with a volatile commodity like DWAC.
Short-Selling Reticence
One of the significant challenges investors face when aiming to short-sell DWAC is the hefty rates. Interest rates for borrowing shares to short were around 110 percent, according to financial data company Ortex in late October, giving an indication of the high expense involved in insuring that bet. It’s worth noting that these rates can fluctuate wildly – at some points, they’ve reportedly peaked as high as 300 percent, further proof of the volatile nature of betting against DWAC.
Additionally, the limited supply of shares to short is another prominent hurdle faced by investors. Only a small portion of the overall outstanding shares are available to be borrowed for short-selling, which has created a shortage and, thereby, driven borrowing rates through the roof.
The Trump Factor
Furthermore, another factor to consider is the ‘Trump Factor.’ Regardless of the perceived profitability or viability of his ventures, Trump has amassed a massive loyal base. Trump’s influence can sway the direction of the stock significantly, irrespective of traditional market forces or financial analysis. Betting against a stock heavily influenced by political sentiment rather than purely economic principles brings its own unique set of challenges and considerations.
Market Sentiment
Market sentiment also plays a crucial role in the stock prices of DWAC. Since DWAC represents a semi-political venture, emotions run high, adding another layer of complexity to shorting the stock. The market volatility surrounding TMTG is driven by a highly charged political atmosphere, making it a more unpredictable investment sphere to navigate.
To short or not to short?
While it’s tempting for some to bet against Trump’s media venture, shorting the DWAC stock comes with enormous financial risks and exigent market complications. An investor deciding to short DWAC needs not only to speculate about the company’s financial future accurately but also navigate an unpredictable political and emotional landscape surrounding it. Therefore, while betting against Trump Media stock is possible, it is certainly a venture that will cost you, both financially and potentially strategically.
