Trump-linked SPAC profits as investors jump on presidential bid

Trump-linked SPAC profits as investors jump on presidential bid

(Bloomberg) — Investors snapped up shares of Digital World Acquisition Corp., the blank check company set to merge with Donald Trump’s social media company, after the former president hinted at plans to make a new bid for the White House.

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The special-purpose buyout firm rallied as much as 66% in its biggest daily rally since the initial rally when the merger was announced, as millions of shares changed hands. SPAC-linked warrants rose 122%, while Phunware Inc., a software company that worked on Trump’s re-election campaign, rose 25%.

Digital World’s gains accelerated as the session resumed as more than 23 million shares changed hands by 2:45 p.m. in New York, nearly 30 times the activity seen on average over the past month. Options volume outpaced selling volume in the stock by more than 2:1, with calls expiring Friday with strike prices of $30 and $25 the most actively traded.

The gains for Trump-linked companies came after he repeated his boast that he is ahead in the polls for the GOP nomination. Trump plans to announce his 2024 campaign during the week after the U.S. midterm elections, people familiar with the matter told Bloomberg.

Digital World has been volatile as the SPAC’s sponsors fail to sway the retailer’s core base to vote on a deadline extension for its merger with Trump Media & Technology Group. Shares were down 70% from a year ago by Friday’s close, amid weak demand for Truth Social and as investors weighed how Twitter Inc. from Elon Musk could affect his future.

The stock has been a favorite among the retail crowd since the pledge was announced last year. While their market has slowed, they have led the SPAC to be the top performer of its kind. With Monday’s hit, it is trading at a premium of more than 170% to the $10.20 they would get if the deal collapses.

“Any Trump news is going to boost interest,” said Matthew Tuttle, managing director of Tuttle Capital Management. “If Trump becomes president again, that could be good for DWAC, at least in the short term. In the long run, we have to figure that if his enemies are out to get him, then something related to DWAC might be low-hanging fruit.”

Retailers were actively discussing the Digital World ahead of Monday’s session. The company’s stock was trending on Stocktwits and was among the most-reported companies on Reddit’s WallStreetBets forum, rivaling reports of beloved Tesla Inc. from retailers. Despite the trading, trading was moderate among Fidelity clients, with buy orders barely outpacing sells.

Short covering could also lead to partial strength, an action where investors close out some of their negative bets as stocks move higher. Almost 13% of Digital World’s shares available for trading are currently sold short, according to data from S3 Partners.

(Updates stock movement throughout, adds details in third paragraph.)

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