6. Bank Failures – while shorting the stock of an individual bank would be illegal if you know for a fact that the FDIC was about to put it in receiver status, it is perfectly legal to short the stock or buy put options on a bank stock that you feel is likely to fail.

Often when a publicly-traded bank goes into FDIC receivership, it’s stock drops to zero or close to it.

You might develop your investment thesis by looking at declining bank ratings, looking for recorded real estate loans that are underwater, and looking for commonalities between a struggling bank and other publicly-traded banks that have recently failed.

The FDIC closes failed banks

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