When companies announce bankruptcy, it is very likely that the stock price will eventually meander to zero and shareholders end up with nothing.
I was wondering if there was a way to take advantage of this scenario and profit off of it.
Today PCG announced bankruptcy proceedings and the stock cratered 50% to 8$.
Now at this point, say you short the stock , that is 800$ credited to your account , remember the stock will eventually end up at 0.However there are some protective actions you need to take.
From now till the stock is actually dissolved there can be a few movements north on minor news so you probably need some protection. You can buy the 8$ Call expiring say in 3 months.
This will protect you against any sudden upward move that might cause margin issues.