On March 28 2024 09:30 Acrofales wrote:
Is Truth social the easiest short option choice in the history of the stock exchange, or is there something I'm missing here?
Is Truth social the easiest short option choice in the history of the stock exchange, or is there something I'm missing here?
To short you borrow a share from someone else, sell it, and then buy it back later so that you can return it to the original owner. Ideally you buy it back at a lower price than you sold it at.
Problem is that you need someone who is willing to hold that share for the period between your sell and your buy back. And the holder might also think that it's overvalued which means that they're going to want to be compensated for the risk associated with owning it for that period by interest payments on their loan of a share. And even if they think that it will only go up and that there is no risk there are still only so many shares available to borrow and everyone knows that it is overvalued. That means that you and everyone else are bidding to borrow that same limited pool of shares available to borrow which means extremely high interest that cuts into your short profits. The big traders are going to do the math there and work out exactly how much interest is too much interest to pay for the expected return on the short based on the expected sell and buyback prices. You're probably going to do it less well. That means that if you actually manage to borrow a share for the purpose of short selling it's because you overpaid interest.
Shorting companies like this is different to shorting Microsoft or whatever. There's a huge pool of institutional shareholders of Microsoft (retirement funds, index funds and so forth) that will happily add a little to their returns by loaning them out because they have zero plans to ever trade on them. They don't care about the difference between a share and an IOU for a share, they're institutional holders, it's all the same to them. If you want to short sell those then you can borrow as much or as little stock as you like for a low cost. Shorting Truth Social is a completely different animal.