The parent company of Truth Social is a popular target for short-sellers, even after they lost $100 million last month betting on a decline in the stock that didn’t come.
I get short trading, but this is way over my head. What are they saying?
Instead, the current trade driving demand is designed to capture the difference between DJT’s stock price and outstanding “warrants,” which will give the owners the right to new stock at a fixed price as long as regulators approve the new shares.
Partly because of that uncertainty, those warrants currently trade below $19, with a list of hedge funds as recent holders. Even after the high cost to borrow stock is accounted for, they are still able to profit from the $30 difference between existing stock and what the warrants are worth, assuming the warrants become registered as shares.
Sounds like abritrage between stock options and the stock, but I don’t trust the press to get this kind of thing right; there’s a graduate-level finance class in derivatives like this.
It’s not that complicated. Don’t make finance seem unapproachable.
The explanation isn’t great but it sounds like they are basically just buying a warrant (call option issued by the company) at a low price and selling the shares short at a higher price. That would create a riskless profit if you wait for the merger to be approved.
If the stock goes way up, you make money on the warrant and pay some back on the short. If the stock drops, you make money on the short and lose some on the warrant.
Usually this strategy doesn’t work but trading in this stock is not rational. It’s like they’re borrowing apples to sell them at $3 now and paying it back with a guaranteed $2 apple later.
I get short trading, but this is way over my head. What are they saying?
Sounds like abritrage between stock options and the stock, but I don’t trust the press to get this kind of thing right; there’s a graduate-level finance class in derivatives like this.
It’s not that complicated. Don’t make finance seem unapproachable.
The explanation isn’t great but it sounds like they are basically just buying a warrant (call option issued by the company) at a low price and selling the shares short at a higher price. That would create a riskless profit if you wait for the merger to be approved.
If the stock goes way up, you make money on the warrant and pay some back on the short. If the stock drops, you make money on the short and lose some on the warrant.
Usually this strategy doesn’t work but trading in this stock is not rational. It’s like they’re borrowing apples to sell them at $3 now and paying it back with a guaranteed $2 apple later.