My Blog, Your Money

Whenever a company files for bankruptcy, its stock becomes worthless.  However, with GM’s filing for Chapter 11 bankruptcy on Monday, the subtleties of this bankruptcy created a phenomenon where GM’s stock actually appreciated in value.  Closing at $0.75 on the previous trading day, the stock opened at $0.99, a 32% increase.  Furthermore, the stock sank to a low of $0.27 in the morning and then rebounded to a high of $1.01.  Investors with good timing could have made 274%, not too shabby for just a few hours.  Some people might be scratching their heads as to how this is possible with a stock that seems to be living on borrowed time (and money), but there are a variety of reasons including investors who had shorted the stock and now need to buy to cover those trades and lack of awareness that the stock will soon be worthless (if you didn’t know before, aren’t you glad you know now?).  It’s an interesting occurrence to be able to make money from a stock after its company declares bankruptcy, but in my opinion it’s too risky to dip my toe in and I’m just happy to observe it from afar.