Short seller bets against Truth Social could result in massive losses if Trump stock rises

The stage is being set for the “mother of all short squeezes” – potentially meaning massive losses for a certain group of investors who have bet against Donald Trump's social media companies, On The Money has learned.

Truth Social shares, trading under the symbol “DJT,” are up nearly 200% this month alone, a rise that tracks various betting odds indicators like Polymarket that predict a Trump presidential victory.

On Monday, DJT shares rose 22%, with the Polymarket odds of a Trump victory next week reaching 66%, their highest ever.

People who held the shares made money. Not so for experienced investors, known as short sellers, who have bet against the stock. “Short interest,” or negative bets, on DJT have surged since the company went public earlier this year and disclosed significant operating losses.

Short sellers have been squeezed and the worst may be yet to come.

Bob Sloan, the founder of S3 Partners, a data analytics firm, told On The Money that the short squeeze potential in shares of Truth Social is similar to what happened with GameStop – the meme stock darling owned by Keith Gill , also known as “Roaring Kitty.”

Like that troubled company, Truth Social doesn't look great on paper. According to its second quarter results, the company lost $16.4 million, and the prospects of making money in the future are bleak.

But there is a lot of emotion surrounding DJT, as there was with GameStop. The GameStop people believed they were doing God's work by supposedly leaving it up to evil short sellers who were betting against a company's survival.

The crowd behind DJT includes the MAGA faithful, the same people who thronged Trump's weekend rally in MSG and believe the world is out to get Trump, who has survived multiple assassination attempts and indictments.

According to Sloan, DJT's short potential is amplified by the fact that insiders like Trump own so many shares. Trump alone owns 57.3% of the company and has not sold any of it. The short selling percentage, or percentage of stocks sold short, is quite high – 17% of all remaining stocks. That means more than $560 million is at risk if there is a significant shortage.

“So far, the shorts are hanging,” Sloan said, noting that he sees little coverage even as Election Day approaches. “Nevertheless, we see DJT as a squeeze candidate.”

If Trump loses? Exactly the opposite could happen; People could sell their stocks and give the short sellers a nice payday after November 5th.

If he wins, the shorts will most likely capitulate and start covering en masse. The MAGA owners make some money and Trump gets even richer. According to Forbes, this month's DJT surge has already increased the billionaire real estate developer's net worth by $3.7 billion.

In a short sale, traders borrow a stock and then immediately sell it. They are betting that the stock's price and earnings will fall if they “cover” or replace their loans at a lower price than the price at which they were sold.

However, if the stock rises significantly, the shorts may experience a “squeeze” as they have to replace their loans at ever higher prices and suffer large, sometimes existential, losses in the process. When they come under severe pressure, a “MOASS” is created – leading to large losses in the short selling community and possibly the failure of a hedge fund or two.

From a fundamental perspective, it's hard to see how even a Trump victory will help significantly boost traffic on Truth Social, making a meaningful difference in Facebook and X's shaky balance sheet and competition.

But that's not how short squeezes often work. The emotions surrounding Trump's rising poll numbers are enough to drive the stock significantly higher and destroy the short sellers at the end of the squeeze.

As a reminder, the GameStop-MOASS drama forced a major hedge fund, Melvin Capital, out of business. Other experienced investors were similarly crushed. The movie “Dumb Money” was about how retail investors rallied behind their prophet “Roaring Kitty” to buy up shares in the troubled video game company that Wall Street had bet against in droves.