"Bond King" Bill Gross has entered the options trading frenzy surrounding Trump Media & Technology DJT stock.
What Happened: Gross is now selling options tied to former President Donald Trump's newly-listed media company stock. He expressed his confidence in this move on social media, highlighting the high volatility of the options.
“A genius can also be an investor with the courage to sell DJT options at a 250 annualized volatility.” Gross has personally taken this trade, selling puts and calls that expire in April, betting that the shares will remain between $45 and $95, reported Bloomberg.
The implied volatility of Trump Media’s at-the-money contracts, which expire in a month, reached 250 this week, a record high for the stock.
This has led to an increase in the cost of options contracts, providing sellers with the opportunity to earn substantial premiums, but also exposing them to significant paper losses in the event of wide share price swings.
See Also: Is Donald Trump’s Media Company Worth More Than Elon Musk’s X?
For context, options contracts are bought at a premium from a seller and give the holder the right to buy or sell a stock at an agreed price in the future. Sellers like Gross are betting that these contracts will expire worthless, allowing them to keep the premium without any loss.
Trump Media’s stock has been further propelled by ardent supporters of the former president, who rallied on social media to boost the company as it merged with Digital World Acquisition Corp., its publicly traded shell company.
This led to the stock jumping as high as 275% year-to-date, considering DWAC’s earlier price.
Why It Matters: Trump Media’s stock has been a hot topic in the market, with many speculators using it as a casino. The company, which went public through a blank-check merger, has a valuation of around $9 billion, far exceeding its modest revenue from the Truth Social platform last year.
However, the cost of betting against the stock is extremely high, with investors facing annual financing costs of 400% to 500% to borrow, making it the most expensive US company to bet against by a large margin.
Despite the stock’s surge, it has also sparked debate on its valuation and the potential risks of betting against it. An investor who once backed a short-selling ban is now considering betting against Trump Media, calling it the "biggest pump and dump stock in history."
Meanwhile, renowned economist Peter Schiff has made a bold prediction about the potential rise of Trump Media’s stock and its impact on Trump’s net worth.
However, not everyone is convinced of the company’s valuation, with Tesla bull Ross Gerber expressing skepticism about it.
Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
Photo by Jonah Elkowitz on Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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