If a company declares bankruptcy.

[J Painter]

Dear Traders: Let's say sometime after sellling short 600 XYZ at $12 per share the Company declares bankruptcy. When would you buy to cover? Do shares of a bankrupt company go to zero? Thank's for any input.

 

[gms]

Isn't that a home run?

Yes, shares can become worthless, though no one trades them at 0. They'll go to bulletin boards first. They get delisted if under $1 for 6 months, I think. Then at any point, their worth will be determined by the outcomes of bankruptcy court. Usually if given a new lease on life, the stock is scuttled and a new unrelated security is issued.

 

[TMTrader]

The stock get unlisted at some point.

TM Trader

 

[Mecro]

Or the stock gets ripped up for no reason by the specialist just to make sure all the shorts get screwed.

It has happened before so be careful. Company comes out with news that it is bankrupt and the government is repossesing its assets. The stock opens up 1 point.