Digital World Acquisition Corp (NASDAQ:DWAC) shares plunged 20.1% on Wednesday morning after Republican candidates endorsed by President Donald Trump performed poorly in Tuesday's midterm elections.
Digital World shares are now down 56.8% overall year-to-date, and short sellers are betting aggressively on more downside ahead.
The Numbers: As a whole, SPACs currently have $506 million in total short interest. S3 Partners analyst Ihor Dusaniwsky said Tuesday that SPAC short interest has increased by $10 million in the past 30 days, led by a surge in short interest for Freedom Acquisition I Corp (NYSE:FACT).
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"SPAC short covering was also muted over the past thirty days, with no SPACs with more than $5 million of buy-to-covers," Dusaniwsky said.
Digital World remains the most popular short target in the SPAC group, with $60.3 million in short interest, more than three times the short interest of any other stock. Freedom is now a distant second with $16.2 million in short interest, followed by KKR Acquisition Holdings I Corp (NYSE:KAHC) with $15 million.
When it comes to short interest as a percentage of free float, S3 says Digital World is the SPAC leader at 12.7% followed by Malacca Straits Acquisition Co Ltd (NASDAQ:MLAC) at 7.7% and East Stone Acquisition Corp (NASDAQ:ESSC) at 6.8%.
Most Expensive SPAC Shorts: Digital World tops the SPAC group when it comes to the most expensive shorts. Digital World short sellers are paying a 45.8% borrow fee, followed by Altitude Acquisition Corp (NASDAQ:ALTU) short sellers paying an 11% fee and OCA Acquisition Corp (NASDAQ:OCAX) short sellers paying an 8.5% fee.
The past month had been painful for SPAC short sellers prior to Wednesday morning's sell-off. Here are the five least profitable stock shorts based on mark-to-market losses since Oct. 1, as of Tuesday:
- Digital World, $656,703 in losses.
- Fortress Value Acquisition Corp IV (NYSE:FVIV), $243,097 in losses.
- KKR Acquisition, $231,329 in losses.
- KKR Acquisition Holdings I Units (NYSE:KAHC), $167,298 in losses.
- Broadscale Acquisition Corp (NASDAQ:SCLE), $130,711 in losses.
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Benzinga's Take: Digital World is a classic example of an investment that likely has a binary outcome. If the SPAC completes its merger with Trump Media & Technology Group and its Truth Social platform, there's a good chance it has significant long-term upside. If it does not complete the merger, the SPAC is likely headed back down to $10.
Photo: Courtesy of Gage Skidmore on flickr
