Following management’s advice to investors to block shares from being lent to short sellers, Trump Media (NASDAQ: DJT) saw a substantial surge in its stock value. DJT stock skyrocketed by nearly 26% on April 18, followed by another 11% overnight, propelling its market capitalization close to $4.9 billion. As of the first nine months of 2023, the company reported a $500 million loss on revenue of $3 million.
Shutting Down Short Sellers
Trump Media’s website and its SEC filings offered detailed guidance on how shareholders can prevent their shares from being borrowed or sold short. According to the company’s filings, former President Trump held approximately 57.6% of the company when it went public. His shares are subject to a six-month lockup period, potentially allowing him to sell off his stake towards the end of September, strategically timed around the presidential campaign.
It’s not just Trump who stands to benefit from investors refusing to lend their shares to short sellers. Early investors who bought before the recent surge can choose to cash out at any moment. However, financial experts are advising caution, warning clients against either buying or shorting the stock due to the elevated risks involved.
Stock lending, while a common practice, comes with its own set of challenges. Lenders receive monthly payments for the shares they lend, with the pricing being influenced by the extent of short interest in a particular stock. Roughly over half of DJT shares that are held off listed exchanges are currently being shorted, as reported by Fintel. While lending shares can offer a form of passive income, it also exposes lenders to the risk of bankruptcy if the borrowed stock plummets to zero.
The Future Trajectory of DJT Stock
The trajectory of Trump Media’s stock will likely remain turbulent until Trump decides to offload his shares. Investors partaking in the DJT ride should bear in mind they are not investing in a thriving business but rather making a political statement and engaging in a speculative endeavor.
*Disclaimer: The opinions expressed in this article are those of the writer and do not reflect any personal investment positions in the securities mentioned. The content follows the guidelines of InvestorPlace.com.