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Former President Donald Trump

Brendan Smialowski/AFP via Getty Images

The wild, Reddit-fueled trading in


Digital World Acquisition

— better known as the Trump SPAC — has left the company’s warrants as a cheap play on the surging stock.

 Shares of the special purpose acquisition company, or SPAC, which plans to merge with former President Donald Trump’s new social media business, popped 91%, or $41.38, to $86.88 in heavy trading Friday after rising more than fourfold on Thursday. The shares (ticker: DWAC) touched a high of $175 earlier in the session and volume at midday was around 72 million shares.

 


Digital World Acquisition

‘s warrants (DWACW), which can be exercised at $11.50 a share, were up 170%, or $19.30, to $30.59 in trading Friday. The intrinsic value is about $75 per warrant, calculated by subtracting the exercise price of $11.50 from the current stock price. While trailing the stock, the warrants are up 60-fold since Wednesday, when they finished at 51 cents when the stock stood around $10.

 The discount to intrinsic value reflects the inability of warrant holders to exercise them now. The warrant terms state that they can be exercised at the later of 30 days after the closing of the deal with Trump Media and Technology Group or one year after the closing of the SPAC offering date, which was in September.

 “Almost every single time when a SPAC becomes a meme stock, the warrants will lag significantly because speculators are only attracted to the stock,” says Julian Klymochko, chief executive of Accelerate Financial Technologies, a Canadian company that operates the

Accelerate Arbitrage Fund,
 an exchange-traded fund (ARB.Canada) that has a high percentage of its assets in SPACs.

He says that arbitragers can’t readily close the stock-warrant gap by buying the warrants and shorting the stock because of the difficulty in borrowing the stock for such a long period.

There are 28.75 million shares and 14.4 million warrants outstanding. Digital World Acquisition initially offered units each consisting of one share and one half a warrant when it raised $287.5 million. The units separated on Sept. 30.

“If you want a piece of the business at a lower implied valuation than the stock, the warrants are a no-brainer,” Klymochko says. But speculators would prefer to play the stock, he says, adding that some trading platforms popular with Reddit investors may not allow warrant trading.

He says that some SPAC warrants have limited upside but a check of the Digital World Acquisition prospectus doesn’t show any such anti-dilution clause.

By the time the warrants can be exercised, the stock could be considerably lower.

Write to Andrew Bary at [email protected]

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