OK, here are some stupid questions ... but I would really appreciate knowing the answers to these. if I short WCOME on IB and then it is delisisted and it is a pink sheet stock, how can I cover my short on IB ? if I short WCOME on IB and it goes to bankruptcy and the stock is decalred worthless, how do I cover my short (or do I need to ?) In both of these cases, when would the cash reappear in my trading account ? Other than the possibility of a WCOME recovery, what possible ways could I get screwed on this play ? i.e. why is this a bad idea ???
if the stock moves to the bboards and you want to cover, you'll have to phone it in via the trade desk. if it goes bankrupt, there will be no need to cover as the cash gets added to your account when you sell and it settles. why would you want to short a stock with 6 cents? there is no way you can convince me that the risk/reward payout is worth it. Just imagine what happens to the stock if they can restructure their debt and/or sell off their assets.
thanks def ... that's exactly the kind of answer I needed. I also had a second motive, which was to understand mechanics of how shorting to 0 works. I have noticed in the past that you have taken a lot of crap answering questions on this board. I would like to take this opportunity to say thanks again for all of your hard work and help answering the dumb ?'s we come up with.
There is another story about shorting very low priced stocks (like OTC or almost bankrupt), there is a chance that the company board could decide to stop FLOATing in any markets, without filing a CH11. They could also buyback shares privately, or sell them privately. In this case people that are short the stock unfortunately will "enjoy" a really BAD TIME... They will be unable to cover at any price, their broker will freeze their assets until the situation will become clear, and they'll be forced to listen to the company for news about a new float of the stock. Often this will result in a loss of 5000% or 10000% on the initial trade. A real NIGHTMARE!! That's why under 1 or 2$ noone should short stocks or related options.
Then wouldn't it make sense to long these utterly-distressed stocks a few days from their fall to grace? Afterall, people who are holding it short are looking to cover because the risk of keep holding it short is pretty great, thereby driving it up a bit. But I suppose the move may not be big enough, or the timing may be off too much. But WCOME yesterday comes to mind.