I have been lurking here for awhile now as I just wanted to get a feel for how things work here. My queston is, is it possible for a retail trader to play the bankrupties that are announced in the market such as...Delphi and K-Mart a few years ago. I was reading that hedge fund manager/trader David Tepper bought 52 million shares of Delphi for a 9.3% stake as the company enters bankruptcy. Anyway to trade these situations? Thanks Alex
If you're a retail trader, the best and only way to trade a bankruptcy play is be "short" the stock and then cover the position upon the public announcement of a bankruptcy filing. It's the old " short-sell the rumor and buy the fact" axiom. At that point, the "vulture investors" will emerge and try to force a beneficial restructuring.
There is a strategy on bankruptcy plays described in James Altucher book "Trade like a hedge fund" that you may be interested in reading. I have tried a few of those lately with disapointing results, so I can't really tell you how to find an edge with them. Good luck.
Thanks guys for responding. So, there is is no way to buy the common stock ahead of the announcement and then come back out on the IPO like was the case with the K-Mart deal?