IRobot Corp. (NASDAQ:IRBT) filed for Chapter 11 bankruptcy protection on Sunday, explicitly stating that under the Picea Robotics acquisition plan current shareholders will be wiped out.
- IRBT stock is crashing. See the chart and price action here.
The equity value is effectively zero. But for the “degen” trader, the fun is just beginning.
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Retail traders with a very high risk tolerance might look for a “zombie squeeze” from iRobot — a high-octane market phenomenon where a bankrupt stock rallies violently before flatlining forever.
Hertz shares saw a zombie squeeze in 2020 and Bed Bath & Beyond in 2023. Now, iRobot is a prime candidate for this dangerous game of financial hot potato, where no one wants to be the last one holding the stock when the clock runs out.
The Mechanics
Why would anyone buy a stock destined for zero? There are a couple of reasons.
Heavily leveraged short sellers will rush to close their positions as iRobot moves toward delisting to avoid holding a cancelled security.
The buying pressure from the shorts covering, combined with retail traders hunting for a “dead cat bounce” can trigger a vertical spike. This type of spike is driven not by fundamentals but by liquidity mechanics and pure speculation.
The ‘White Knight’ Trap
Another possible catalyst for a zombie squeeze could be a rumor of a “White Knight” bidder who might come in at the last minute to outbid Picea. The truth doesn’t matter in a zombie squeeze, and a single unverified social media post could send the stock up 50% in minutes.
The Reality Check
Do not mistake any volatility for life. iRobot carries over $200 million in debt and creditors will be paid first in bankruptcy court. For shareholders to see a penny, a new buyer would need to pay off every creditor in full first.
Do not mistake trading iRobot shares for investing. It is more like passing a stick of dynamite and hoping it doesn't explode in your hand. The music is about to stop, and no one wants to be the one holding the potato when it does.
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