https://www.bloomberg.com/opinion/articles/2018-04-11/-go-to...
Maybe the company being vaporized is always a risk of shorting though, not a finance guy so I have no idea.
why is that a risk tho? If you shorted something, the money is already in your hands (aka, you "sell" short presumably, where you make a buck selling it now, and have to put up cash in the future to make the short whole).
If in the future, the company vaporized, then wouldn't you no longer owe the shorted stock?
Even if your investment strategy is sound, if in the short term, you on paper owe stock that is "worth" billions of dollars, the institutions that you are owning this paper billions of dollars too, could be unwilling to just trust that you will be able to pay it.
Thus, they bake in contractual provisions, such as margin calls, which require you to automatically sell/buy the stock back, if you ever reach certain loss limits. Thus, forcing you to accept the loss now, even if your long term strategy is hypothetically profitable.
Or, at least that is the simplest/most common ways that this work. I am sure that margin calls are more complicated than that, for large financial institutions.
In recent memory, this has happened to Longfin Corp. [0], Cynk Technologies [1], China Biotics [2], and surely others. If it does happen before you can close out a short position, that's bad. You can be stuck that way for years [3].
[0] https://www.sec.gov/enforce/information-longfin-investors
[1] https://www.sec.gov/litigation/suspensions/2014/34-72594.pdf
[2] https://www.sec.gov/litigation/opinions/2013/34-70800.pdf
[3] https://www.barrons.com/articles/getting-caught-short-152306...
There are relationships with Indian banking giant ICICI that are questionable and that also cross continents.
And more (it's big wall map tiny font material here).
Point being, shaking up the Adani Groups reputation has flow on effects that can be capitalised upon in many ways by shorting many other associated companies that may fail due to governments losing confidence to proceed on large projects, choosing other partners, etc.
If it's illiquid - you don't.
Jeopardy with market crashes isn't that you'll be forced to sell your stocks low but that there will be no one to sell to and you'll sit on assets devaluing to zero or close.
https://www.reuters.com/article/muddy-waters-asia-short-sell...
If the stock is near zero and you have a contract to sell at $5 - that's profit.
So in so far as you have technical concerns about the risks of not getting completely paid on your short position if you have a borrow on a delisted bankrupt company whose shares are tied up in litigation, the market maker will have the same concerns about the same arcane risks and will pass the cost on to you in the form of a worse price on your option.
It might still be a better way for you to make this trade - the options trader has a whole settlement team to figure this out - but it's a service you're paying for.