Trump Media stock is booming (for now). Here's the way to play it on the cheap.

By Brett Arends

Even if I wanted to buy the stock - I still wouldn't buy the stock

If you wanted to buy shares in Trump Media & Technology (DJT), Donald Trump's new stock market venture, how many could you get for $100?

If you say the answer is two, you're correct. The stock price, which has more than doubled in two weeks, is up to $49.

But if you say the answer is five...you're also correct.

And here lies a fascinating insider tip on how to make a bigger bet on the stock for the same amount of money.

Let me say at the outset that I wouldn't bet on this company, except maybe for fun.

No, MAGA Nation, this is not for any political objection to the former and possibly future president. It's because I don't like losing money. And outside investors in Trump's ventures have a nasty habit of ending up on short rations.

When it comes to investing, I belong to the "green" party.

But if I wanted to buy the stock, I still wouldn't buy the stock.

I'd buy the warrants.

These trade under the ticker (DJTWW) and look to me like a much smarter way to bet on the same thing. (Though the liquidity is uncertain)

The stock trades for $49. The warrants? Just under $20. Or, five per $100.

What are warrants? They are effectively a down payment on a share. If you own a warrant, you have the legal right to convert it into a full share in due course after paying some extra money. In the case of DJT, you'd have to pay an extra $11.50.

The advantage of warrants over the stock is that you get claims for way more shares for the same amount of money. Or, viewed another way, that you can buy the same number of shares for a lot less green stuff.

In the event - possible, although I am skeptical - that this stock flies to the moon, the person who bought warrants can just pay another $11.50 per warrant and convert them to full shares. They get all the same profits as the person who bought the shares.

But in the event that the stock collapses to $0, which is also possible, they've lost a lot less money.

In the current situation the warrants look totally crazy. They should trade for roughly $11.50 less than the price of a full share. But instead they are trading for $30 less. It makes no sense.

Put it another way: Buy a warrant for $20, pay another $11.50 to convert it into a share, and you've bought a share in DJT for a total cost of $31.50 - while the rest of the suckers are paying $50.

Nuts.

I asked Matthew Kennedy, an expert on newly-listed stocks, what he thought. He said the warrants came with two particular risks that investors need to understand.

The first, he says, is that they are not yet convertible into shares. "The warrants cannot be exercised until the latest registration statement is declared effective," Kennedy tells me. "We don't know when that will be. Likely in the coming weeks, but it could be months. After all, it took an especially long time for the original merger to get approved."

The second, he says, is that because most of the trading volume in DJT is in the stock, any short-term price action might benefit the stock more than the warrants. You might miss out on short-term gains, he says.

Kennedy is a senior strategist at Renaissance Capital, a provider of IPO-focused exchange-traded funds and pre-IPO institutional research.

Of course, if the company's registration statement is never declared effective it's presumably because the company is toast anyway.

I won't bore you by repeating at length all the usual cautions about this stock that you have already read a dozen times - the lack of real financials, the fine print in the prospectus, the $6 billion valuation.

Personally, I view DJT as a very binary stock. If Trump wins the U.S. presidential election in November, and does all his communication through his Truth Social app, the stock could do very well. (The company owns Truth Social.)

If Trump loses in November, or wins and doesn't use Truth Social much, the stock could easily end up at $0.

In those circumstances, if I were going to bet, I'd rather make a down payment through the warrants than pay the full price up front. I have no idea right now if the stock will ever be worth the extra $11.50. So I'd rather keep that money in my own pocket as long as possible.

And right now, buying the warrants for $30 below the stock price looks like a much better gamble.

Warrants, of course, are much more volatile in price than the stock-in both directions. If the stock falls below $11.50 and stays there, the warrants would be worthless.

But hey, I'm writing for a living, not sitting on a yacht, living off my billions, and having my toes massaged by a team of professionals. What do I know?

-Brett Arends

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05-01-24 0853ET

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