Author Topic: What happens if you're short a stock that goes bankrupt?  (Read 4101 times)

Baylor3217

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What happens if you're short a stock that goes bankrupt?
« on: November 27, 2013, 10:38:23 AM »
Does one have to cover before the bankruptcy is official?  Can one cover after in the link sheets?

brewer12345

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #1 on: November 27, 2013, 10:40:48 AM »
Ideally, you would never cover.  You don't pay cap gains taxes on your short until you cover.  If there is no reason to cover (ever), don't.

mpbaker22

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #2 on: November 27, 2013, 10:50:03 AM »
Ideally, you would never short.

Fixed  it for you.

To the OP, I think there are some difficulties with getting it processed, but I think you just get 100% returns in the end.  I don't know the process, but I'm almost certain it exists.

chasesfish

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #3 on: November 27, 2013, 02:59:37 PM »
Does one have to cover before the bankruptcy is official?  Can one cover after in the link sheets?

I'd be too busy doing a happy dance to worry about covering.

huadpe

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #4 on: November 27, 2013, 08:14:03 PM »
Bankruptcy doesn't make the stock cease to exist.  You would still have to cover, though of course the shares would be trading for maybe 1-3c each.

Nords

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #5 on: November 30, 2013, 10:24:55 PM »
Does one have to cover before the bankruptcy is official?  Can one cover after in the link sheets?
If you must seek closure, wait to cover until you've reached long-term capital gains.

The original owner of the shares (from whom you borrowed) will probably write them off as worthless and won't want them back.

Richard3

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #6 on: December 01, 2013, 01:52:38 PM »
Yeah but if you're paying a fee to borrow that eats your returns. I'd cover when they bottomed out at 1-3c (or whatever) unless long term status was not far away.

Nords

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #7 on: December 01, 2013, 02:30:45 PM »
Yeah but if you're paying a fee to borrow that eats your returns. I'd cover when they bottomed out at 1-3c (or whatever) unless long term status was not far away.
I've heard of paying stock dividends to the owner when you're borrowing their shares, but I've never heard of paying fees.  Fidelity does that for free, and hopefully that's a standard of most brokerages.

Richard3

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #8 on: December 02, 2013, 12:51:55 PM »
Why would the stock owner lend you their stock if they weren't being compensated?

https://www.fidelity.com/learning-center/trading-investing/trading/about-short-selling

"Borrower pays interest to Fidelity while position remains open"


Nords

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #9 on: December 02, 2013, 12:58:45 PM »
Why would the stock owner lend you their stock if they weren't being compensated?
https://www.fidelity.com/learning-center/trading-investing/trading/about-short-selling
"Borrower pays interest to Fidelity while position remains open"
I did it for years with Fidelity (2000-2006) without ever paying a fee.  Maybe it was comped for having a certain account size or trading like a hypercaffeinated bunny.

brewer12345

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Re: What happens if you're short a stock that goes bankrupt?
« Reply #10 on: December 02, 2013, 01:04:36 PM »
Why would the stock owner lend you their stock if they weren't being compensated?
https://www.fidelity.com/learning-center/trading-investing/trading/about-short-selling
"Borrower pays interest to Fidelity while position remains open"
I did it for years with Fidelity (2000-2006) without ever paying a fee.  Maybe it was comped for having a certain account size or trading like a hypercaffeinated bunny.

Fees are usually paid when a stock you want to short is hard to borrow.  It is unusual.

If I were short a stock taht went bankrupt, I would leave the position open until doomsday.