Trump Media (NASDAQ:DJT) stock jumped after advising investors how to block shares from being borrowed or sold short.
DJT stock rose almost 26% on April 18 and another 11% overnight. This brought the market capitalization to nearly $4.9 billion. The company reported a loss of about $500 million on revenue of $3 million during the first nine months of 2023.
But That’s Not the Point, My Friend
Trump Media’s website and filing with the Securities and Exchange Commission (SEC) provided instructions for disabling stock lending.
According to the filing, former President Trump owned about 57.6% of the company on March 26, when it came public. His shares are subject to a six-month lockup period. That means he could sell near the end of September, at the height of the presidential campaign. He could sell out a little earlier if the stock stays about $12 for 20 of any 30 days beginning 150 days after the closing. (That could mean a sale in late August.)
Trump isn’t the only winner if investors refuse to lend their shares to shorts. Speculators who bought before the latest run-up can cash out at any time. Because of the risk, most professional advisors are telling clients to stay away from buying or shorting the stock.
Stock loans are not uncommon, and lenders are paid monthly. The price depends on how heavily shorted a stock is. (Over half the DJT shares held off listed exchanges are being shorted, according to Fintel.) Loaning shares in this way can create passive income. Short sellers can borrow shares to assure themselves of stock to buy when they close a position.
The biggest risk on a stock loan is bankruptcy. If a stock you’ve loaned goes to zero, that’s what you get back. You can’t sell a stock while it’s on loan to someone else.
DJT Stock: What Happens Next?
The Trump roller coaster ride will continue until he decides to cash out. Investors should know, however, that they’re not buying a going concern. They’re making a political statement and engaging in a speculative game.
On the date of publication, Dana Blankenhorn did not hold (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.
