Trump and Media Group (DJT) stock, closely tied to Trump’s election chances, faces high squeeze risk due to limited float and elevated short interest. With the election nearing, options markets expect up to a 50% price move. Trump’s 57% stake and current short losses intensify squeeze potential.

DJT is Trump’s stock, with only 40% of shares floated.

The price of DJT closely mirrors Trump’s chances in prediction markets.

Data as of Friday October 25th 2024

Prediction markets typically reflect the consensus of polls; while the units differ, they present probabilities.

DJT currently serves primarily as a proxy for the election, although its valuation is influenced by other factors as well.

There is a short-selling issue with DJT, as most of the stock is not floated.

The options market is pricing in a potential move of 50% (in either direction) around the election. This indicates a distribution of values averaging 50%, rather than a precise 50% movement.

Trump owns 114.75 million shares, or 57.33%, having gained $2.6 billion in the current rally. The lockup period on selling stock expired last month.

The short position is currently high at 14.5 million shares, representing 17% of the float. This short interest has increased as the stock price has risen.

Overnight rates are currently above 10% annualized and have been on the rise.

DJT has maintained a score of 100 for squeeze risk throughout the month. This score reflects a crowded short position of 50, stemming from the large, short interest relative to the small float, combined with recent stock returns.

The short position has decreased by one million shares, or 6%, which may indicate a potential squeeze, though the underlying conditions remain. The stock's 200% increase has caused significant losses for those shorting the fourteen million shares, totaling approximately $322 million in recent losses.

The table below presents the option-implied borrow rates for various terms, along with the average rates. The borrow rates after November are more normal.

DJT Borrow Rates Implied by the Option Market

Using the recent mapping of election probabilities to stock price and assuming these probabilities can only go to 1 or 0 yields results that are difficult to interpret. Each percentage point of probability has recently been valued at approximately $1.50.

Thus, if the probability increases from 60% to 100%, the model suggests a $60 increase in stock price. However, this linear model may not be applicable in this scenario. It indicates that if Trump were to win, there could be a substantial upward movement in DJT, potentially triggering a squeeze.

Conversely, using the same model suggests that DJT could become worthless if Trump were to lose. Again, this model may not accurately reflect extreme price movements.

The options market is currently pricing in a potential move of 50%, indicating a more conservative expectation for stock price fluctuations.

With high short interest and election-driven volatility, DJT faces a potential squeeze risk as short sellers contend with substantial losses.

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