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I am wondering if people have ever shorted a potentially bankrupt company (or if that's too risky).
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Well, in theory, if you short and the company goes bankrupt, then you get to keep everything since those shares are no worth $.0 and you can cover for free.
I think what you are getting involved with those is very risky and speculative. If a company is nearing bankruptcy, then it is safe to assume it is being traded for pennies. So, regardless if you are buying to hold or shorting, any movement could have a big impact on your underlining position.
One other thing to consider, depending on the stock, you might not even be allowed to short it. I have run into situation where I was not allowed to short a stock because of random reasoning.
The question of chapter 7 versus chapter 11 though is a good one that I cannot answer. I'd be curious to know the difference myself
