Suppose you short-sell 100 shares of IBM, now selling at $120 per share. a. What is...

Question

Question

Suppose you short-sell 100 shares of IBM, now selling at $120 per share.

a. What is your maximum possible loss per share?

b. What happens to the maximum loss if you simultaneously place a stop-buy order at $128?

Answer 1

Answer #1

a.Loss = Selling price - buying price

Since the price can rise to any level, maximum loss is unlimited.

b.Stop Buy order is executed at the specified level of price

Hence, maximum loss = (120-128)*100

= $800

i.e. $8 per share

Answer 2

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