By Michelle Conlin
NEW YORK (Reuters) - Trump Media's roller-coaster share price has served as something of a proxy for Republican presidential candidate Donald Trump's chances of election. Now traders are finally at their day of reckoning.
Traders and investors say the stock is at risk of extreme volatility after the result of Tuesday's election is known, with its trading detached from its day-to-day business fundamentals. The company operates the Truth Social media platform and has launched a streaming service.
"This stock is insanely overvalued and the economics make no sense whatsoever, even if Donald Trump is elected," said Brian Lukow, a former Lehman Brothers senior vice president-turned-movie producer who now shorts stocks, a bet that the price of a stock will fall. In Trump Media, he thinks he has found his next best bet, if Democratic candidate Kamala Harris wins.
For the second quarter, Trump Media reported a loss of $16.4 million and revenue of $837,000. The company has a market capitalization of around $6 billion.
"The stock is going to crash and burn if Harris pulls out a victory," said Lukow, who said he continues to hold his short position. "If Trump wins, then this bet looks like the greatest bet he's ever made."
For weeks, the rise in Trump Media stock has come in tandem with Trump's surge on election betting sites such as Polymarket, where the odds of the Republican's chances of winning rose as high as 67%.
This movement has drawn scrutiny from social media users and online gambling experts because it came alongside some large bets from a Paris-based trader and diverged sharply from opinion polls, which have had the race in a dead heat.
Last week, as Trump Media stock dropped sharply, however, so did Trump's chances on Polymarket. On Sunday the odds had Trump at around 54%.
There is no formal analyst coverage of Trump Media, which is 57% owned by Trump himself. The former president's stake in the company is worth $3.5 billion, according to Reuters calculations. Trump's total net worth, as of Sunday, stands at $5.6 billion, according to Forbes magazine.
The Trump campaign referred questions to Trump Media & Technology Group, the company's full name. TMTG did not respond to a request for comment.
TRADING STRATEGIES
Trump Media stock has a fervent online following including those who identify themselves as Trump supporters who vow they will hold the stock long-term. The stock's staunchest proponents often post publicly on Reddit and Truth Social, including in one group called $DJT, whose online banner is a rocket ship blasting into space.
One trader, who declined to be named, told Reuters he was holding his position because he believes Trump Media has a good chance of making media acquisitions and that it could go higher if Trump wins the election.
Others see the stock as a great short-term trading opportunity.
“It is maybe one of the best trades of the year,” said Vaughn McNair, who trades from his home in Joliet, Illinois, and was once a moderator on the Wallstreetbets Reddit forum during the GameStop (NYSE:GME) meme stock frenzy of 2021.
McNair, known as Grandmaster-OBI to his 34,000 followers on his "Making Easy Money" YouTube channel, alerted his followers on Sept. 24 that Trump Media was the "ultimate gamma squeeze," an options dynamic which can send a stock price sharply higher. During the next month, the shares surged 236%.
McNair said he has already cast his ballot for Trump this year, but said his investment views are separate from his political beliefs.
VOLATILE STOCK
Trump Media's stock has shown volatility as the election nears. On Tuesday, the trading was halted five times due to extreme price swings. In the week before the election, the stock plunged around 27%.
If Trump wins, analytics firm S3 Partners said in an Oct. 29 report, there could be heightened risk of a squeeze. A short squeeze occurs when an asset's rising price forces bearish investors to buy back borrowed shares.
Trump Media's stock options have drawn outsized trading volumes in recent days, with the stock often featuring on the list of most heavily traded names in the options market.
Over the last month, on average, some 300,000 DJT options contracts changed hands daily, with total options premium traded at about $2.45 billion, according to options analytics service Trade Alert.
Traders expect massive volatility from the stock in coming days, with options pricing in about a 50% swing in the share price, in either direction, by Friday, Nov. 8.
“If Trump loses," said McNair, "it’s going to be bad for anyone who holds it."