NEW YORK (CNN/Money) -
Shares of UAL Corp. have gotten an unexpected lift in the wake of the company's filing for bankruptcy court protection last week, despite the fact that most observers expect shares will be worthless when the legal process plays itself out.
Shares of UAL closed Friday, Dec. 6, the last day of trading before the bankruptcy, at 93 cents, down 7 cents on the day and off $2.19 from levels before the company's request for federal loan guarantees was rejected, putting it on the path to bankruptcy.
But rather than continue to lose additional ground last week after the early Monday bankruptcy filing, it actually gained ground, closing unchanged the first day, then climbing each subsequent day in very heavy trading. Shares closed Friday at $1.75, up 18 cents or 11 percent, on the day on volume of 57 million shares, and up 88 percent for the week.
The stock opened higher Monday, and climbed to a high of $1.90 before losing some of last week's gain. UAL (UAL: down $0.26 to $1.49, Research, Estimates) shares were off about 15 percent, but still up more than 50 percent from pre-bankruptcy pricing.
Company spokesman Joe Hopkins said UAL had no comment on the company's stock price. Ray Neidl, analyst with Blaylock & Partners, said short sellers, who promise to deliver shares at a fixed price at some future date, may be responsible for some of the climb.
Short sellers profit when the price of the stock goes down, but at some point they need to actually buy the shares in order to complete the contract, and those purchases can create a market for depressed shares.
"There's no reason other than covering a short position to buy shares. It's either that or stupid money," said Neidl.
Jim Corridore, airline equity analyst with Standard & Poor's, said he doubts there were enough short sellers to drive the large volumes last week. About 200 million shares changed hands last week, or more than three times the total number of shares outstanding.
"Certainly arbitrageurs and day traders had an opportunity to make money," said Corridore. "But someone will be caught short in the end. It's like a Ponzi scheme or pyramid scheme."
About 54 percent of the stock had been held by the Employee Stock Ownership Program. State Street Bank & Trust, the ESOP trustee, had been selling some of those shares before the bankruptcy filing due to the risk of the shares losing value in bankruptcy.
The U.S. bankruptcy judge in the case blocked the additional sale of its remaining 32.5 million shares because the change in ownership could have future tax implications for the company. One analyst, who spoke on condition his name not be used, said that court action changed the supply and demand equation for the shares at the end of the week.
"That's the only thing we can figure out for the rise," said the analyst. "You always have some kook out there thinking buying a bankrupt company is a great contrarian thing to do. But I can't picture the bond holders who will be lucky to get 10 cents on the dollar allowing 1 cent of equity to emerge from the bankruptcy."