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Trump-tied spac gains as investors leap at presidential bid

Bloomberg
Bloomberg11/7/2022 10:30 PM GMT+08  • 3 min read
Trump-tied spac gains as investors leap at presidential bid
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Investors snapped up shares of Digital World Acquisition Corp., the blank-check firm set to merge with Donald Trump’s social media company, after the former president hinted at plans to make another bid for the White House.

The special-purpose acquisition company rallied 66% in the biggest one-day advance since the initial pop when the merger was announced as millions of shares changed hands. Warrants tied to the SPAC surged 125% to US$9.30, while Phunware Inc., a software company that worked on Trump’s re-election campaign, jumped 38% and video platform Rumble Inc. rose 3.8%. Rumble says it’s “designed to be immune to cancel culture” and has a pact with Trump Media & Technology Group.

Digital World’s surge accelerated as the session went on as more than 32 million shares changed, nearly 33-times the activity seen on average over the past month. Call option volume outpaced those for puts on the stock at a more than 2:1 ratio, with calls with a strike price of US$30 that expire on Nov. 11 and Nov. 18 the most actively traded.

SPAC surges as speculators bet on a 2024 presidential bid

The gains for companies linked to Trump came after he repeated a boast that he’s leading in surveys for the GOP nomination. Trump is tentatively planning to announce his 2024 campaign during the week after US midterm elections, people familiar with the matter have told Bloomberg.

See also: Trump says he will make 'big announcement' on Nov 15 in Florida

Digital World has been volatile as the SPAC’s sponsors fail to corral its primarily retail trader base to vote on an extension to the deadline for its merger with Trump Media & Technology Group. Shares were down 70% from a year ago through Friday’s close amid weak demand for Truth Social and as investors weigh how Elon Musk’s purchase of Twitter Inc. could affect its future.

The stock has been a favorite among the retail-trading crowd since the tie-up was announced last year. While their buying has slowed, they’ve driven the SPAC to be the top performer of its kind. With Monday’s bump it trades at a more than 185% premium to the US$10.20 holders would get if the deal collapses.

“Any Trump news is going to boost interest,” said Matthew Tuttle, chief executive officer at Tuttle Capital Management. “If Trump becomes president again that could be good for DWAC, at least short term. Longer term, have to figure that if his enemies want to get him then something related to DWAC may be low-hanging fruit.”

See also: Senate Majority Leader McConnell recognises Biden as President-elect

Retail traders were actively discussing Digital World on Monday. Its ticker was trending on Stocktwits and was among the most mentioned companies on Reddit’s WallStreetBets forum, rivaling mentions for retail trader favorite Tesla Inc. Despite the touts, trading was modest among Fidelity customers with buy orders narrowly outpacing those to sell.

Short covering could also be driving some of the strength, an action where investors close some of their negative bets as shares rise. Nearly 13% of Digital World shares available for trading are currently sold short, according to S3 Partners data.

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