Trade Alert: Playing the Patriot Bankruptcy filing
Great question from an alert TradingWithCody subscriber:
zumJuly 9, 2012 – 9:18 pm@cody: Haven’t played bankruptcy in a while….Does PCX fits the bill?
Yes, PCX’s bankruptcy filing probably does fit the bill:
Patriot Coal files for Chapter 11 bankruptcyat MarketWatch (Mon, Jul 9)
By the way, how about this guy’s prescient analysis, note the publication time and date:
4 Coal Companies To Avoid Due To Massive Debtat Seeking Alpha (Tue 11:22AM EDT)
The day after the company files bankruptcy, that brilliant analyst is telling people to avoid it. Sigh.
Anyway, here’s the deal with buying a stock the day it files for bankruptcy, as taught to me by my old mentor, James Altucher:
Tactic 1 – Buying Bankrupt companies
The day a company declares bankruptcy is often a great buying opportunity. Generally, all the selling is over. When the trading halt is lifted, everyone tries to cover their shorts forcing the stock up. These stocks can be rocket ships, doubling or tripling in the next several days.
So here’s the deal with Patriot Coal (PCX) as it filed for bankruptcy yesterday afternoon and the stock is currently halted. I’d put in an order to buy some shares at 30 cents or less (the quote is currently showing at 12 cents bid to 28 cents offer) and I’d try to buy it closer to 20 cents a share after a small first tranche near 30 cents.
Two very important things to remember on this kind of a trade — it’s a VERY SHORT TERM TRADE. I’ll look to be out of this entirely within the next week or so. We’ve done this “buy the bankruptcy” trade very successfully with you subscribers twice so far with American Airlines and Kodak, but that doesn’t mean we’ll always bat 1000 on these types of trades. Which leads me to my next very important disclaimer — DO NOT RISK MORE CAPITAL THAN YOU CAN AFFORD TO LOSE on this (or any trade). Because we could be wiped out completely if the trade goes awry and this is not an investment. It’s a short-term trade.
At any rate, I’m going to bid for some shares of PCX in the manner described above, risking just a little bit of capital.
