What happens if I maintain a short position in a stock that is delisted and declares bankruptcy?

By Investopedia Staff AAA
A:

The short seller owes nada. Nil. Zip. Zero.



When you short sell you borrow the shares, sell them on the market, and then collect the proceeds as cash. If you wanted to get out of the position, you would have to buy back the same number of shares to repay the person (or brokerage) from whom you borrowed them. If you buy back the shares at a price lower than the price at which you originally sold them, you collect the difference - so short selling is a way to profit from a falling stock. But if the company is delisted and bankrupt, you don't have to pay back anyone because the shares are worthless.



Note: This is the best possible scenario for a short seller.



RELATED FAQS

  1. How can I profit from a fall in stock prices of companies in the financial services ...

    Learn about the different methods successful investors use to profit by trading in the financial services sector, even when ...
  2. What happens when a corporation declares bankruptcy?

    Understand what options are available to corporations under bankruptcy protection, and learn what takes place after bankruptcy ...
  3. Is going long considered to be less risky than going short?

    Learn what the difference between going long and going short, why it is riskier to be short than long, and the risk associated ...
  4. How can I profit from a fall in the metals and mining sector?

    Learn the methods that shrewd investors use to profit from a fall in the metals and mining sector. These methods include ...
RELATED TERMS
  1. Estimated Recovery Value (ERV)

    The projected value of an asset that can be recovered in the ...
  2. Recovery Rate

    The extent to which principal and accrued interest on a debt ...
  3. David Einhorn

    Known for his short selling strategy, activist investor David ...
  4. Bankruptcy Court

    What is bankruptcy court?
  5. Short Call

    A type of strategy regarding a call option, which is a contract ...
  6. Reorganization

    A process designed to revive a financially troubled or bankrupt ...

You May Also Like

Related Articles
  1. Trading Strategies

    Rules and Strategies For Profitable ...

  2. Stock Analysis

    Will American Airlines Fall Back To ...

  3. Mutual Funds & ETFs

    Short Russia with Direxion's Daily Russia ...

  4. Stock Analysis

    What’s The Best Airline Stock In the ...

  5. Mutual Funds & ETFs

    Are These the Top Inverse ETFs of 2 ...

Trading Center