Short selling a stock and the company is de-listed and or goes bankrupt, what happens?
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5 Comments
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The same way you would if the company did not go bankrupt.
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Nothing. The stock in a company continues to trade after bankruptcy and/or delisting from an exchange.
If the stock is canceled during bankruptcy proceedings it will no longer exist. In that case you will not be able to buy it but you will not need to buy it since your debt no longer exists. (When you sell a stock short you assume a debt of the shares you borrowed. Since your debt consists of shares, if the shares no longer exist the debt no longer exists.)
I used to trade (but not since I took the Wealth Dynamics Profile Test) so my memory might not be 100% however…
You are obligated to pay $1.25 to the person who wrote the Short position that you bought.
If you get exercised, you will be exercised at $0 and owe a full $1.25 on every share.
In a way you don’t have to buy it back to close the short. For tax purposes you need proof that the company has gone bust. If it is de-listed but not bust there is usually a facility through the market where positions can be closed at a nominal amount.
If the stock is de-listed, then you’ll be able to purchase shares under the new symbol. If it stops trading and becomes worthless, then there’s nothing to repay. If it stops trading and has a cash value, then that’s the amount you’ll pay.
Why would you wait until it hit zero to stop out?