Question

On February 6, 2018, shares of the photo-app company Snap closed at $14.06. That night the company announced better-than-expected earnings results, and the next morning trading in the stock opened at $17.15 and then quickly rose to $21.22 before ending the day at $20.75.

a) Suppose that near the end of the day on February 6 an investor placed a limit order to buy 50 shares of Snap for $14. What happened in the investor's account the next day.

b) Suppose an investor heard about Snap's good earnings on an evening financial news program on February 6. Thinking that Snap was a good buy at that day's $14.06 closing price, the investor submitted a market order to buy 50 shares of Snap. What was the result?

c) Another invester who already owned 200 shares of Snap also heard the good earnings news on the evening of February 6. The investor expected the news to lift Snap's price the next day, so he submitted a limit order to sell 200 shares at $20. What was the result?

d) A day trader following Snap placed a market order to buy 1,000 shares at 10AM on February 7, at which time Snap was trading for $19.25. The trader watched the price rise to $21.22 and then, to protect the morning's gains, submitted a stop-limit order to sell at $21. What happened?

Answer 1

a) As the limit order was given to buy the shares at $14 , and the market closed at $14.06, the order was not executed and was cancelled on closing of the market on the 6th February. There will be no transaction in the investor's account and investor has to again give orders

b) The investor's market order was immediately executed at the price of $14.06 as his order, being a market was executed immediately

c) Assuming that the investor submitted the sell limit order the next day. As the share price rose to $21.25 , it increased beyond $20 , so at that time, the seller's limit order got executed at the price of $20

d) The day-trader's stop-limit order to sell at $21 was also executed as the price fell afterwards and closed to $20.75 . So during the price fall from $21.22 to $20.75, the stop limit order was executed at $21.