Shorting a stock and it goes to Zero
 

I don't do a whole lot of shorting and have never had this happen. From whom would you "Buy to cover" if the company goes busto, ala Enron?

Re: Shorting a stock and it goes to Zero
 

If you have a company that has gone busto you can get a letter from your broker deeming the securities to be worthless. At least this is how you claim a loss on stocks that go bust.

Re: Shorting a stock and it goes to Zero
 

Why would that be a loss, or are you just saying that's what you do if you had owned the stock? Wouldn't you just get the monetary value of the change in price from where you shorted it?

Re: Shorting a stock and it goes to Zero
 

Great question Fog,as MOST investors/traders DO NOT have the correct answer ...(dont just give the "easy theoretical answer" of subtracting your short entry price to zero)

C'mon guys .......dont diassapoint me,as I am counting on a few of you to give the correct response!


Stephen [img]/images/graemlins/cool.gif[/img]

Re: Shorting a stock and it goes to Zero
 

I'm not sure if Enron has yet gone to zero. It still traded after bankruptcy for a long time as a penny stock even though the shares were worthless. In that case you buy to cover in the market.

Re: Shorting a stock and it goes to Zero
 

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I'm not sure if Enron has yet gone to zero. It still traded after bankruptcy for a long time as a penny stock even though the shares were worthless. In that case you buy to cover in the market.

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yeah what's up with that btw? Was it still possible for Enron to make money somehow when it was trading for a few cents?

Re: Shorting a stock and it goes to Zero
 

Such situations are now taxable events. Since you do not cover in this situation, there is no offsetting transaction and thus the trade never closes and no taxable event occurs.

That tax-free loophole is closed now, and shorted stocks that go to zero are now set up as de facto taxable events.

Re: Shorting a stock and it goes to Zero
 

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I'm not sure if Enron has yet gone to zero. It still traded after bankruptcy for a long time as a penny stock even though the shares were worthless. In that case you buy to cover in the market.

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yeah what's up with that btw? Was it still possible for Enron to make money somehow when it was trading for a few cents?

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No, but people like my mom didn't want to believe that, and their brokers were more than happy to earn some commissions off their trades. Unless Enron goes through the hoops to prevent trading, people still own their shares and can trade them on the pinksheets.

Re: Shorting a stock and it goes to Zero
 

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I don't do a whole lot of shorting and have never had this happen. From whom would you "Buy to cover" if the company goes busto, ala Enron?

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You don't buy it to cover. You just sit on the position, and after a couple three years you broker will eventually "write it off". Meanwhile you get to defer your taxes. If it's a situation like United Airlines, and the old stock is retired because they issued new stock, it may happen as soon as the new stock is issued.