The stage is being set for the “Mother of All Short Squeezes” — meaning possibly massive losses for a certain group of investors who wagered against Donald Trump’s social-media company, On The Money has learned.
Truth Social shares that trade under the symbol “DJT” are up nearly 200% this month alone, a surge that tracks with various betting odds indicators, like Polymarket, that are predicting a Trump presidential victory.
On Monday, DJT shares spiked 22%, with the Polymarket odds of a Trump victory next week hitting 66%, its largest level ever.
People who held the stock have been making money. Not so for sophisticated investors known as short sellers who have bet against the stock. “Short interest” or negative bets on DJT soared since the company went public earlier in the year and disclosed significant operating losses.
The short sellers have been getting hammered, and the worst could be yet to come.
Bob Sloan, the founder of S3 Partners, a data analytics firm, told On The Money the short squeeze potential in shares of Truth Social is similar to what went down with GameStop — the meme-stock darling touted by Keith Gill, AKA “Roaring Kitty.”
Like that troubled company, Truth Social doesn’t look too good on paper. It lost $16.4 million, according to its second-quarter results, and the prospects for making money in the future look bleak.
But there’s a lot of emotion around DJT, like there was in GameStop. The GameStop crowd believed they were doing God’s work, sticking it to allegedly evil short sellers betting against a company’s survival.
The crowd behind DJT includes the MAGA faithful, the same types that crowded into MSG for Trump’s weekend rally, and believe the world is out to get Trump, who has survived multiple assassination attempts and indictments.
Sloan says DJT’s short potential is further enhanced by the fact that insiders like Trump hold so many shares. Trump alone owns 57.3% of the company and hasn’t sold any. The short interest, or percentage of shares shorted is pretty high — 17% of all remaining shares. That means more than $560 million is at risk if there’s a significant squeeze.
“So far the shorts are hanging in there,” Sloan says, noting that he sees little covering even as Election Day approaches. “That said, we see DJT as a squeeze candidate.”
If Trump loses? Just the opposite could happen; people could unload their stock, handing the short sellers a nice payday after Nov. 5.
If he wins, in all likelihood the shorts capitulate and begin covering en masse. The MAGA holders make some money and Trump gets even richer. This month’s DJT surge has already increased the billionaire real estate developer’s net worth by $3.7 billion, according to Forbes.
In a short sale, traders borrow a stock, and then sell it immediately. They’re gambling the stock will fall in price and profit when they “cover” or replace their borrowing at a lower price than what they sold at.
If the stock rises significantly, however, the shorts can be “squeezed” because they have to replace their borrow at ever higher prices, incurring large and sometimes existential losses. If they get squeezed a lot, you get a “MOASS” — leading to big losses in the short-selling community and maybe a hedge fund or two going bust.
From a fundamental standpoint, it’s hard to see how even a Trump victory will help drive significant traffic to Truth Social that will make a meaningful difference in its wonky balance sheet, and competition for the likes of Facebook and X.
But that’s not how short squeezes often work. The emotion surrounding Trump’s improving poll numbers is enough to boost the stock by a lot to crush short sellers on the receiving end of the squeeze.
Recall: The GameStop MOASS drama put one big hedge fund, Melvin Capital, out of business. Other sophisticated investors got similarly crushed. A movie, “Dumb Money,” was made about how small investors rallied behind their prophet Roaring Kitty to buy up shares of the struggling video game company that Wall Street had bet against in droves.