Investing

Can Trump's DJT Stop Short Sellers from Driving the Stock Down?

Eric Bleeker

Published: April 19, 2024 9:58 am

DJT – or Trump Media & Technology Group – filed with the SEC that it’s publishing a new FAQ that includes guidance on how investors can block short sellers from accessing their shares. In the video below, 24/7 Wall Street Analyst Eric Bleeker details whether DJT shareholders following these steps could impact the stock’s share price. 

Watch the Full DJT Video Here 

Key Points From the Video: Are Short Sellers to Blame for DJT’s Drop?

The FAQ released by Trump Media & Technology group suggests the following four ways for investors to keep their shares away from short sellers:

1. Keeping shares in a cash account instead of a margin account
2. Opting out of lending programs
3. Moving your shares to the company’s transfer agent
4. Or transferring your shares to a bank and holding them in a retirement account

The company also provides an example form you can send to your broker asking to opt out of stock loan activities. In response to these instructions – shares of DJT jumped more than 25% in Thursday’s trading. 

Today the CEO of Trump Media & Technology also sent a letter to the Nasdaq warning of ‘naked’ short selling and potential market manipulation. The letter lacked any specific accusations but focused on the potential negative impacts of brokers allowing shorting without borrowing underlying shares first. 

Here are a few couple that shorting Trump’s stock might not be as impactful as DJT leadership believes:

• Borrow rates for Tump Media & Technology have been as high as 600% annually recently. Trump’s leadership believes this provides incentive for brokers to create naked shorts, but it also discourages shorting. In addition, any shorts must be for a very short time since the maximum payoff on a short is 100%. Simply put, at the borrow rates being charged to short Trump stock, holding a short position for even a few months would cost so much that profiting from the position would be impossible. 
• There is also very little stock available to short DJT. In early April the figure sat at less than 50,000 available shares out of a public float of more than 40 million total shares. 

This second bullet point is important as the amount of shares available to short is already almost non-existent before Trump Media & Technology issued its FAQ yesterday. The bottom line is that selling pressures on the stock are much more likely to be coming from existing owners selling rather than shorting via borrowing shares held in margin accounts. 

Video Transcript

Austin Smith:

Speaking of stocks going down, let’s take a look at Donald Trump’s DJT. Can DJT stop short sellers from driving the stock down? Particularly in the last few years with Tesla and some of the other short sellers that were coming after that stock very publicly, the battle between a corporation and short sellers is more public than ever.

Eric Bleeker:

Yeah, we saw with GameStop what happens when you pit this battle of everyday investors versus short sellers and with DJT – or Trump Media and Technology Group – this is a company that was trading for, I believe, at $10 billion in market cap against $4 million in sales.

It’s definitely in the meme stock category. So what DJT did on Thursday morning was they filed with the SEC that they’re publishing a new FAQ on their investor relations site, which shows investors how they can block short sellers from accessing their shares.

So, the FAQ suggests four ways to do this.

Number one, keeping shares in a cash account instead of a margin account. Number two, opting out of lending programs. Number three, moving your shares to the company’s transfer agent. Or number four, transferring your shares to a bank and holding them in a retirement account.

Because shorted shares, need to be borrowed, and there are certain conditions that need to be met for brokers to put your shares in a borrowing program.

The company also put an example letter in how people could write to their brokers to request them not be borrowed.

Now, in response to DJT telling people how to keep their shares from being shorted, they were up 20% into Thursday afternoon, a very large reaction. And while they had been down before then, still, this is a big price movement.

So, the real question is, could this action actually stop the slide in DJT shares? Well, I’d say there are a few things investors need to consider.

First, it’s when you short a stock, you have borrowing rates. Now, for a blue-chip company, this might be a lower amount. We’re talking percentages. But for Trump, it’s as high as 600% a year recently. That figure changes all the time, but it will almost certainly stay amongst the most expensive stocks to short in the market.

So, second, for any short targeting DJT You can only do it for a very short amount of time because if you hold it for too long, you can only make 100% profit on a short and the fees you’re paying will exceed any profit potential. So, anyone shorting DJT needs to be in and out very quickly.

Third, there’s very little stock to short. In early April, the figures had less than 50,000 shares available to short for DJT of a public float of more than 40 million.

So, you add all this up, and the question is, when a stock’s going down, what’s the selling pressure from? And the reality is probably not from direct stock shorting.

The bigger pressure is existing shareholders leaving the stock. So while there is a very outsized movement from this today, I don’t think any changes in getting shareholders to place their shares and brokerage accounts is really going to affect the profile of DJT.

Austin Smith:

This feels like a company that you just have to stay away from on either side, on the long or the short. It’s like a battle of who can manipulate the markets more.

We know that DJT had a really low float, which is really contributing to their valuation. But as you said, this is a company that, as of their most recent reporting, has a little over $4 million in revenue and only 36 employees.

So it’s really a matter of who can manipulate this market more when the float is that short. Definitely a fun one to watch, not one we would recommend participating in on either side today.