Trump Media and Technology Group’s (NASDAQ:DJT) share price has more than doubled since mid-April. Trading in Trump Media stock has become so crazy that CEO Devin Nunes has asked House Republicans to investigate short-selling by eight financial firms.
“I believe quick action is necessary to protect retail shareholders, identify wrongdoers, and determine whether any laws including [Racketeer Influenced and Corrupt Organizations Act] statutes and tax evasion laws have been violated,” Nunes wrote in an April 24 letter to House Republicans.
It’s rich to suggest that DJT stock deserves to trade higher than it already does. It’s one of the most overvalued billion-dollar-plus stocks trading on Nasdaq. Congress shouldn’t touch on eliminating shorts, which provide market liquidity.
That said, forget Shorting Trump Media stock. It costs too much.
According to Bloomberg, the cost of borrowing DJT shares has risen 600% over the past few weeks. Its May 2 article suggested that the share price would have to fall 12% weekly to break even on their short.
It’s not worth it. Try these three trading strategies instead.
Buy Trump Media Stock Put Options
Trump Media stock has a 30-day average volume of 159,670. In four days in mid-April, it had four consecutive days of over 200,000 options traded. Investors were using options to weigh in on its ridiculous valuation.
In the May 2 options trading, the put/call volume ratio tilted toward calls at 0.84. However, that’s a one-day snapshot. The Put/Call Open Interest Ratio is 1.88, reflecting investors’ negative sentiment.
Looking at the expiration dates through January 2026, the highest Put/Call OI Ratio is May 24, at 4.80, followed by Sept. 20, at 4.02. Let’s examine the unusual options activity for these two expirations.
As of May 3, The May 24 strike price with the highest Vol/OI ratio as of May 3 was $46 put at 22.0. However, the volume was just 22.
The strike price with the highest volume was 525 for the $40 expiry. The ask price was $8.70, a high 21.8% down payment for selling 100 DJT shares.
With only three weeks to expiration, that isn’t great value. A cheaper bet experiencing high volume was the $20 put with a $0.60 ask and a 3% down payment. The odds of it paying off are slim to none, but it will only cost you $60 per 100 shares.
The Sept. 20 put with the highest volume was the $2.50 put with a $0.14 ask price and a 5.6% down payment.
With 140 days to expiration, there’s plenty of time for Donald Trump to face potential jail time, which would likely significantly hurt the share price.
Maybe not down to $2.50, but enough that you make money by selling the put back to the market instead of exercising it.
I’d go with the latter.
Contract for Differences
Full disclosure: I’ve never bought or sold a stock using CFDs (contract for differences). However, that doesn’t mean it’s a bad thing.
In addition, you better live in Canada or the UK to trade them. They’re illegal in the U.S. partly because they’re traded over the counter without regulation.
“CFDs allow traders to trade in the price movement of securities and derivatives. Derivatives are financial investments that are derived from an underlying asset,” states Investopedia. “Essentially, CFDs are used by investors to make price bets as to whether the price of the underlying asset or security will rise or fall.”
The beauty of CFDs is the use of leverage on your bets. For example, CMC Markets in Canada has a 15% margin on Canadian-listed stocks and 30% for U.S.-listed stocks. So, a short position betting against DJT would require you to put down approximately $1,440 at current prices.
It’s not quite options-cheap but available to investors outside the U.S.
Spread Betting Is Also Illegal
The third way to short a stock is spread betting. However, like CFDs, it is illegal in the U.S.
“Spread betting is essentially speculating on the future direction of a specified financial instrument like an individual stock or index by making a directional bet with the spread betting company,” stated Seeking Alpha contributor Stephen Simpson in 2022.
“The bettor chooses the security in question (like an individual stock or stock index), decides on the size of the bet, puts up a small percentage of the notional trade value as collateral (margin), and then profits or loses money depending upon how the price of the underlying security moves.”
If you live in the U.S., you likely won’t be allowed to open an account with a UK spread betting firm. However, according to Simpson, you can make a short bet with as little as 5% down. The bets tend to have one-day or quarterly expirations.
The most significant difference between spread betting and CFDs is the expiration date. Spread betting expirations are fixed, whereas CFDs have none. According to Investopedia, the other difference is that the profits from a spread betting trade are tax-free.
Americans can only utilize shorting or put options to bet against Trump Media stock.
It’s a big sell.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
