The American airline Spirit Airlines has lost around 60% of its market value in recent hours due to rumors of a possible bankruptcy.
Spirit Airlines, one of the largest and most popular domestic airlines in the United States, lost almost 60% of its stock market value in one day. This happened after economic publications reported on a possible bankruptcy announcement by the company.
Despite the fact that Spirit is the third largest airline in the US market after Delta, after such a sharp drop in value, its shares are now trading at $1.3 per share. By comparison, the company’s competitor, Delta Airlines, trades at around $64 per share.
Economists say one factor behind the sharp decline is that many investors have taken short positions in the company. This means that many market players are betting on the company’s failure, which aggravates its financial problems.
Short options (or “short selling”) are a financial strategy in which investors bet that a company’s stock price will fall. They borrow shares from another investor or broker and sell them at the current market price. Then, if the stock price falls, they can buy the same shares at a lower price and return them, profiting from the difference between the sale and purchase price.
If a company experiences financial problems or a drop in value, as in the case of Spirit Airlines, many investors may “short” the stock, which increases the drop in its market price.
Cursor previously wrote that an anti-Semitic scandal broke out around Delta Airlines.
