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In the case of bankruptcy and zero value how do short sellers cover a stock if the company files for bankruptcy and get de-listed in a stock exchange? Would it be safer to short by buying put options in an event like that? Obviously it wouldn't make sense to return a zero value stock to the lender, but what if they demand the worthless paper back?
I have never been a part of such a process but there is absolutely nothing wrong with the person who is short to cover at $0 and keep 100% of his initial investment.
Put options would yield a higher return overall because you have much more leverage to utilize. When shorting you can only make the amount you bet originally.
__________________ Blain Reinkensmeyer
Elite staff member, stocktradingtogo.com
Community manager, covestor.com.
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