[ferdek]

Maybe I misremembered something and cannot find a source now, but I think there was some way to avoid paying tax on short sales when company goes bankrupt and gets delisted.

EDIT: See sibling comment.

EDIT 2: Am I reading this right? almost 1,800,000 shares failed to deliver just in one day of Sep 22nd? [0]

[0] https://fintel.io/ss/us/rxt

[kaashif]

If the company actually goes bankrupt and their stock is delisted from exchanges, covering your position becomes much harder since liquidity is greatly reduced.

I think the ideal scenario for a short seller is if the stock loses 99%, stays listed, they cover, then it gets delisted.

I might have that wrong though.

[seabird]

You have that wrong; bankruptcy is the ideal scenario for somebody with a short position. The brokerage writes it off. The shares are worthless, so why go after somebody for owing you $0?