Strategies to Prevent Short Selling of Trump Media Stock

The short-selling-prevention tips posted Wednesday on Trump Media’s website come as its DJT stock has sharply fallen in price since it began being public trading on March 26.

TFD – Explore essential strategies to safeguard your investment in Trump Media stock against short selling. Discover key market trends, shareholder guidance, and actionable tips to protect your investment and navigate market fluctuations effectively.

Trump Media is making a point of educating its investors on how to stop short sellers—those who wager that the price of the company’s shares will fall—from borrowing their stock.

The Trump Media website published short-selling prevention advice on Wednesday. This coincides with the company’s DJT stock seeing a significant decline in value since it started trading publicly on March 26. Additionally, despite the comparatively high costs associated with financing these trades, short sellers have shown a strong interest in the owner of the Truth Social app.

Even if the price of Trump Media’s shares increased by almost 15% on Wednesday, it closed at $26.40, which is still a staggering 63% less than where it debuted on March 26.

Just last week, the stock fell 20%, and on Monday and Tuesday, it fell more than 18% and 14%, respectively.

The closing price of the shares on April 1, the day Trump Media revealed it had booked a $58 million loss for 2023 despite only generating $4.1 million in revenue, was almost 46% lower on Wednesday.

With over 60% of the company’s shares, former President Donald Trump is by far the largest shareholder in Trump Media. Additionally, if DJT’s price maintains above $17 per share in the upcoming days, his 78.75 million shares might shortly increase by 36 million shares because of an earnout provision in the merger agreement that made the business public.

However, Trump, the presumed Republican nominee for president, and Trump Media have witnessed share price reductions that have cost them billions of dollars in share value since late March.

The company added a supplement to its frequently asked questions list on its website on Wednesday, after two days in a row of steep price declines. The company revealed this development in an 8-K filing it made with the Securities and Exchange Commission on Thursday morning.

In the supplement, shareholders can find comprehensive guidance on how to avoid having their shares loaned for a short interest position.

The act of borrowing stock shares from a firm and promptly selling them for a predetermined price is known as short selling. After waiting for a while in the hopes that the share price would decline, the short seller repurchases the same number of shares and returns them to the lender, keeping the profit that they made from the initial sale of the shares after paying the brokers’ costs.

In a Wednesday FAQ supplement, Trump Media stated, “For long-term shareholders who believe in the Company’s future, the Company is highlighting the following actions you can take with your brokerage firm to prevent the lending of your shares for short selling.”

The advice includes moving Trump Media shares to the company’s designated transfer agent, “opting out of any securities lending program,” holding DJT shares in a cash account at a brokerage firm rather than a margin account, and transferring shares to a bank and “holding them in your retirement account.”

A useful form letter that shareholders can send to their brokers is included in the instructions.

In the letter, it is requested that the following securities be held in the writer’s cash account exclusively and not be made accessible for stock loan activities.

“I hereby expressly opt-out of any securities lending programs and instruct you to not loan out any of my shares,” the letter says, before a section that the sender can fill out with their number of shares.

A request for comment regarding the new guidelines pertaining to avoiding short selling was not promptly answered by a Trump Media spokesman.

Because short selling differs greatly from a “long position” in a stock, where a person can only lose the money they paid for the shares if their price drops to zero, it is highly dangerous.

Conversely, a short position in a stock may theoretically witness continuous price increases, in which case the short seller would have to pay a disproportionately large amount of money to buy back the shares and return them to the lender.

Asserting that danger, Trump Media said in its updated FAQ that brokerage firms lend shares “to sophisticated and institutional investors” in order to conduct short sells. When a customer engages in short sales with them, brokers frequently demand that they are seasoned investors with access to enough cash or collateral to repay their losses in the event that the short trade fails.

Trump Media also noted that brokerage houses can generate “an alternative source of revenue” by lending shares to short sellers.

“If the price of the stock in fact decreases, then the brokerage firm and the sophisticated and institutional investors will have made a profit, while the ultimate retail investor has not,” Trump Media told its shareholders.”

Out of the more than 136 million shares in the corporation, only roughly 5 million have been made available for short sales. Additionally, early this month, a large portion of the 5 million shares were already locked up in short positions.

But Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, told CNBC in early April, “What I’m hearing on the Street is that if [an amount] of stock becomes available, shorts are taking it down.”