Trump Media is the most expensive U.S. stock to short — by far
- Trump Media, which began being publicly traded last week, is now far and away the most expensive stock to sell short, according to S3 Partners, a leading financial data marketplace platform.
- Investors who wanted to borrow Trump Media shares to sell them short on Wednesday would have had to pay financing costs of between 750% and 900% of the price of the stock annually, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
- Meanwhile, existing short positions in Trump Media are paying costs of 565% annually, he said.
You need a lot of cash — and guts — to short Trump Media stock right now.
Trump Media, which began being publicly traded last week, is now far and away the most expensive U.S. stock to sell short, according to S3 Partners, a leading financial data marketplace platform.
But plenty of people are still willing to pay those steep costs, based on their belief that Trump Media's share price is bound to fall dramatically from its Wednesday closing of $48.81.
Investors who wanted to borrow Trump Media shares to sell them short on Wednesday would have had to pay annual financing costs of between 750% and 900% of the price of the stock, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
That means a short seller of the DJT ticker who took a position Wednesday would have had to pay costs of between about $1 and $1.22 per day to the lenders.
To break even on a new trade after one month, a short seller would have to see the share price of Trump Media drop by more than $30.
That could be a tough position to be in, given the fact that many of Trump Media's shareholders are individual investors motivated to buy the stock by their support for former President Donald Trump, the company's majority shareholder and the highest profile user of its Truth Social app.
Investors who started short-selling Trump Media earlier than Wednesday are paying less in costs, which are collected at the end of each month, Dusaniwsky noted. But not that much less.
Existing short positions in Trump Media were paying costs of 565% annually on Wednesday, he said.
For comparison, the average stock borrow financing cost for a short position was just .71%.
"It's the most expensive stock borrow," Dusaniwsky said of Trump Media. "Every day the stock has to go down 78 cents just to make up financing costs, just to put you to zero."
"People are looking for an extraordinary price drop in an extremely short period of time," he said. "If you're talking about holding your stock for a month, the stock has to drop by more than a half for this to be profitable."
Dusaniwsky characterized Trump Media's short sale financial costs as "extraordinarily rare."
"This is a 'black swan' event," he said. "As something that's a legitimate trade, this is way, way, out on the curve."
The second-most expensive stock to short Wednesday was Canopy Growth, whose short sellers were on the hook for costs of 198% of the stock price annually, according to S3 Partners data.
Short sellers in Beyond Meat, the third-most expensive stock by costs to short, would have paid 79% annually.
Short sellers are effectively betting that a stock's price will drop below the price at which they borrowed the shares that they then sold. If the price does fall, they can buy shares to return them to the lenders, pocketing the price difference.
But if the share price rises, they can be forced into the uncomfortable position of having to buy shares and lose money on the trader or increase the collateral they posted to secure the trade — a "short squeeze."
As of Wednesday, the short interest in Trump Media — or the value of shares borrowed for short trades — was about $255 million. Many of those short positions were acquired in Digital World Acquisition Corp., the publicly traded shell company whose merger in late March with Trump's social media company led to Trump Media becoming publicly traded.
In March, short sellers' positions in DWAC and then in Trump Media were down about $126 million in so-called mark-to-market losses, a drop of nearly 70% for the month.
Despite that and despite Trump Media's high cost to sell short, plenty of investors are interested in doing just that.
They are drawn by the fact that the share price gives it a market capitalization of $6.6 billion despite having just $4.1 million in revenue last year.
"What I'm hearing on the Street is that if [an amount] of stock becomes available, shorts are taking it down," Dusaniwsky said.
When Trump Media went public last week, its price skyrocketed by more than 50% percent within the first minutes of trading, to a high of $79.38 per share.
But on Monday, the share price plunged 21% after Trump Media reported a loss of $58 million in 2023.
Dusaniwsky said that short sellers in Trump Media were getting into those trades because "they think this stock is overbought" and that there is a real opportunity to make money from a dramatic price drop.
Those sellers are "hoping to make a 20-plus percent return on that trade," which means the share price would have to fall by up to 70% to cover the financing costs of the trade, he said.
The investors who can borrow shares from their brokers for a Trump Media short sale are "good customers" of those brokers, he said.
"When the stock borrow becomes this difficult, only the best clients are getting that," he said. And the best clients are the ones with the reserves of stock or other collateral to cover their positions, he added.
But getting shares to borrow to sell short is increasingly difficult. Out of about 5 million shares of Trump Media available to short, 4.94 million have been already borrowed, which drives up the financing costs.
"This is now a squeezable stock because the shorts are losing money, the interest rates are so high, and there's also a recall risk," Dusaniwsky said, referring to a situation when a broker needs to obtain shares from a short seller to sell for a customer in a long trade position who originally bought the shares on margin.
Dusaniwsky said short sellers are in a tight spot because many of Trump Media shareholders are not in the mood to sell their shares, and thus drive down the price, and because there are so few shares to borrow and sell short.
— Additional reporting by CNBC's Nick Wells