Three categories of opportunity appear in a bull market (1) the restructured and heavily indebted company close to a stumble, (2) the "for sale" but not sold company, and (3) the company with deteriorating earnings that attempts to create the appearance of health with the sale of assets.
Assets are hard to value in a greater fool environment. Before a stock is shorted, the maximum buy-out value must be lower than the stock price.
Parkinson's Law of Short Selling: the stock price expands to fill the available short capacity and last iota of patience, particularly when it is a "no brainer."
From the Kay Jewelers example, the shorts concluded from the buy-out announcement frenzy that short speculation on "for sale" candidates was a less risky business than risk arbitrage - particularly if you could stand the news announcements and upward lurches.
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