Buying PUT options on companies in bankruptcy is a good way to profit? They all have downward trends! Yes? No? Why not?
2007-12-14 13:05:35 · 3 answers · asked by westphalia1 2 in Business & Finance ➔ Investing
Buying a put option on a company that goes bankrupt is the best-case-scenario. It costs you nothing, so you get a 100% profit.
2007-12-15 01:00:37 · answer #1 · answered by Anonymous · 0⤊ 0⤋
"Shortly after a Bankruptcy announcement, trading the stock will be suspended from the exchange and began trading on the OTC Bulletin Board. When a stock does not trade on a national market, the options exchanges will typically allow for investors to enter 'closing only' transactions. Investors may have to request an option quote from their broker. Investors also have the right to exercise their options versus closing the position in the open market."
....So if the company is already bankrupt forget about buying any put options. If they go into bankrupcy while you own the put options then you could close your position. Keep in mind though that these "closing only transactions" will probably be done at the price the option was at just prior to the bankrupcy announcement.
So it is definitely not a sure fire way to riches!
2007-12-14 13:27:56 · answer #2 · answered by kevinjohnbrown 2 · 1⤊ 1⤋
It is not a sure thing. Bankrupt companies sometimes emerge from bankruptcy causing the stock price to go up.
2007-12-14 13:25:01 · answer #3 · answered by zman492 7 · 0⤊ 0⤋