Delphi's ( DPH) bankruptcy filing might make it Black Monday for the auto parts industry, but for hedge funds with big bets riding on the company's stock and bonds, the picture could be even bleaker. The No. 1 parts supplier to General Motors ( GM) ended months of frenetic speculation on Saturday by seeking Chapter 11 bankruptcy protection. The stock, which could well end up worthless in a reorganization, was recently trading for 48 cents after falling from $2.20 to $1.12 on Friday. For so-called "event-driven" hedge funds that tailor their bets to news flow, bankruptcy was not the preferred outcome. Faced with the choice of shorting the stock and owning Delphi's bonds, or doing the reverse, many funds did the former, according to sources who spoke to TheStreet.com. At this point, that trade has rendered the greater pain. "I don't know why they were long the bond. It's because they're crazy," said John Taylor, who runs FX Concepts, a macro and futures hedge fund. "It's exactly the same thing as a year ago with General Motors and Ford ( F), when everybody was betting they were not going to be junk." As if to remind traders of that botched tactic, Standard & Poor's on Monday downgraded General Motors further into junk status, cutting its long-term corporate credit rating to BB- from BB. "The downgrade follows Delphi Corp.'s bankruptcy filing, repercussions of which could impede GM's efforts to turn around its ailing North American automotive operations," S&P said. Up until early Friday, bonds of Delphi were trading around $60 to $65.50 per $100 of face value -- high levels for a company that could go bankrupt. But the assumption of many was precisely that Delphi would avoid bankruptcy. By Friday, amid leaks that the United Auto Workers union wasn't going along with Delphi's requested concessions, Delphi bond prices started to fall. "They wanted to take their compensation package, including benefits, down from $63 to $18 an hour. They would never have agreed to that," says Kevin Tynan, an auto analyst with Argus Research.