Roger C asked:
If I am shorting stocks in a company that eventually goes bankrupt, will I be able to buy to cover? What happens?
If I am shorting stocks in a company that eventually goes bankrupt, will I be able to buy to cover? What happens?
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What happens when a company that I am shorting goes bankrupt?5 comments to What happens when a company that I am shorting goes bankrupt?You must be logged in to post a comment. |
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stocks become worth-less
you make a lot of money.
When a company files for bankruptcy, the stock generally dives immediately to under a dollar a share, but still trades for pennies a share during the bankruptcy process (which can take more than a year). In some cases, the company emerges from bankruptcy with some small amount of value left in the common stock (which is why some people are still willing to buy it during the bankruptcy process). Most that I’ve seen however emerge from bankruptcy with the stock canceled (and therefore worthless).
You can buy to cover at any time during the process. The stock will probably get kicked off the major exchanges and end up on the pink sheets, but you can still buy it there – just be sure to use a limit order. Or you can wait until the process is over and if the stock is canceled and worthless, you will not have to buy it back at all and will get to keep all the cash you received when you sold it short.
You have made some money and you should cover your position. One reason to cover your position is that you borrowed shares and are paying interest on the money you borrowed to buy the shares.
The shares should still be available to trade even after the company declares bankruptcy.
the stocks are declared worthless and they have to be reissued aka Delta. Once they go into pink sheet get rid of them you already made your money.