Question

An investor purchased a "BBB" stock several weeks ago at $30 per share. the price now...

An investor purchased a "BBB" stock several weeks ago at $30 per share. the price now is $50. If the investor wishes to protect a gain of about $10 a share, what order will the investor place?
- market order at $60
- limit order at $50
- stop loss order at $40
- buy a call options contract with stike at $45
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Answer #1

The correct answer is option C. stop loss order at $40

By placing a stop loss order at $40, the investor protects his profit of $10 per share. If the price drops to $40, the stop loss order gets triggered and the order is executed.

Other answer options are incorrect:

- market order at $60. Market order gets executed immediately. And we cannot specifiy a price in market order.

- limit order at $50. A limit order close to the current price likely to gets executed immediately. If the order gets executed immediately we cannot participate in the upside potential of the stock.

- buy a call options contract with stike at $45. Buying a call option will only increase the downside risk and doesn't protect the profit.

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