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the value of Stock A to be $22 and Stock B to be $18. If both...

the value of Stock A to be $22 and Stock B to be $18. If both stocks have a price of $20, which stock do you short?

a

b

a=b

n/a

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Answer #1

If both the Stocks are having a current market price of $20 ,I will be choosing the stock to short which will be having a lower market price in future, because that will help me in realisation of profit.

If I am shorting a stock at the current market price, I will be expecting it to go down and only stock B is going down to $18, so I would be only shorting stock B as it will provide me with a profit of (20-18)= $2 in future.

I will not be shorting stock A, because the value of stock A is expected to be higher than the current market price in future and it will be leading to loss of( 22-20)= $ 2 Loss

Correct answer will be option (b) B.

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