- Warrants tied to Digital World Acquisition, a SPAC that plans to merge with Donald Trump’s Truth Social, soared as much as 2,686% on Thursday.
- The warrants surged from Wednesday’s close of $US0.52 ($AU1) per share to as high as $US14.49 ($AU19).
- SPAC warrants are more volatile than the underlying stock and grant its holders the right to purchase shares of the company at a pre-determined price.
But that gain translated into even bigger gains for public warrants tied to the SPAC, which soared as much as 2,686% in Thursday trades.
The Digital World Acquisition Warrants jumped from Wednesday’s close of $US0.52 ($AU1) to as high as $US14.49 ($AU19) on hype surrounding the proposed merger with Trump’s up and coming social media competitor.
According to Digital World’s S-1 filed with the SEC, the warrants have a strike price of $US11.50 ($AU15), meaning they were well in the money as the underlying Digital World stock hit a high of $US52 ($AU70) per share. In other words, holders of the warrants could exercise them to purchase shares of the SPAC at $US11.50 ($AU15) even though its currently trading well above that level.
Volume in Digital World’s warrants soared to 73 million shares on Thursday, far outpacing the few thousand shares that would trade prior to the deal announcement.
Public warrants tied to SPACs are inherently more volatile than the underlying stock because they can expire worthless and are not redeemable if a deal is not completed within what is often a two-year deadline.
The agreement with Digital World puts an $US875 ($AU1,173) million enterprise value on Trump Media & Technology Group. A potential earnout of $US825 ($AU1,106) million in additional shares could bring the cumulative valuation to $US1.7 ($AU2) billion, depending upon the performance of the stock after the merger is completed, Trump Media said in a press release.