Why some retail traders are pouring into a Trump-tied SPAC

Shares of Digital World Acquisition (DWAC), the blank check company planning to take former President Trump's new social media venture public, declined 15% on Tuesday. This comes after a 10% decline in the previous session, and jump above 800% over the span of two days last week.

The stock has been on a wild ride over the last four sessions, since Trump announced Trump Media & Technology Group (TMTG) would be launching a platform called TRUTH Social.

"The excitement and enthusiasm surrounding this stock appears to be related to the idea of what the company represents and could become," YouTuber Matt Kohrs told Yahoo Finance.

Kohrs is just one of the retail traders who recently bought into the stock.

"I have a very small long position on DWAC. I believe it's a high risk to high reward trade, but it is fun to have little skin in the game," said Kohrs, who sees the stock's volatility more suited for swing traders.

"I think there are many retail traders who enjoy the chaos of these types of trades because it's an opportunity to quickly bolster their P&L so they can invest more capital back into their core positions," he said.

Last week, when DWAC shares jumped more than 800% over a span of two days, social media lit up with posts.

"I’m very lower middle class and somehow made $2,590 in like 90 seconds pushing buttons on my phone while sweating … my kids are gonna have an epic Christmas," wrote dragonbenj on Reddit.

TRUTH Social logo is seen displayed on a phone screen with Amercan flag displayed on a laptop screen in the background in this illustration photo taken in Poland on October 22, 2021. TRUTH Social is a new social media platform announced by the former President of the United States Donald Trump. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
TRUTH Social logo is seen displayed on a phone screen with Amercan flag displayed on a laptop screen in the background in this illustration photo taken in Poland on October 22, 2021. TRUTH Social is a new social media platform announced by the former President of the United States Donald Trump. (Photo by Jakub Porzycki/NurPhoto via Getty Images) (NurPhoto via Getty Images)

'As long as Trump is involved, this is never going out of the news'

"Trump has 'Made SPACs Great Again'," Matthew Tuttle, CEO of Tuttle Capital Management, told Yahoo Finance following last week's stock performance. "If you are a Trump fan this is a way you can invest in him. If you aren’t you probably have FOMO by now."

Tuttle notes DWAC is not an investment at this point, it is a trade.

"Take all of the hype that GameStop (GME) and AMC (AMC) have gotten this year and multiply it by infinity, that is what you are going to have on this going forward," he said. "As long as Trump is involved this is never going out of the news."

Some retail investors seem to agree. Posts about DWAC on Reddit's WallStreetBets lean less toward political views and more towards the mighty dollar.

"Trump has many wealthy friends who will see the potential and invest in a big way. Imagine getting in on Amazon at 100. This could go big long term. Worth holding on to," wrote Neat-Ad1670 on Reddit.

"I mentioned the stock to a couple of people but they hate Donald Trump so much that they wouldn't even go in. How foolish ... Chance to make money on something that's just at the ground level," wrote Fluid_Reputation_121.

Relatively few financials or outlook specifics are known about TMTG or the special purpose acquisition company (SPAC) taking it public. Yahoo Finance reached out to both TMTG and DWAC for interviews but had not received a reply by publication date.

DWAC chart
DWAC chart

On Tuesday the former president released a statement highlighting why his company will "take on Big Tech censorship."

A company overview posted on TMTG's website shows the venture hopes to fuel user growth given Trump's massive social media following on Twitter (TWTR), Facebook (FB) and Instagram (89 million, 33 million, and 24.5 million respectively), prior to bans on those platforms earlier this year.

On Monday the stock dipped 10% after short-seller Iceberg Research said it was betting against the stock over the risk that Trump could renegotiate the merger deal given the stock's frenzy.

More details in the coming days about TMTG and the special purpose acquisition company taking it public could make for some volatile weeks ahead. Digital World Acquisition's CEO told Reuters specifics on the merger would become available "soon."

The founder of UnusualWhales.com, an options focused service for retail traders, says it's hard to tell where DWAC's stock price will go next.

“People believe ‘memes’ die and go. But GME as an example, has held nearly $200 over the last six months," said Whales, who told Yahoo Finance that he does not actively day trade.

"I can't say where it's [DWAC] going to go from here. It’s too preliminary to tell. The options chain is too fresh, too new," he added.

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