Question

Suppose you short-sell 100 shares of IBX, now selling at $150 per share.

a. What is your maximum possible loss? The maximum possible loss is 150, 0 or unlimited

b. What happens to the maximum loss if you simultaneously place a stop-buy order at $151.50? (Do not round intermediate calculations. Input the amount as a positive value.) The maximum possible loss is now $

Answer 1

A. Here if the 100 shares are Short sold which is now selling at $ 150 per share, Then in future the stock needs to be purchased the price prevailing in the future. So in fure the stock can go up to any price in upper limit. Hence the Maximum possible loss is Unlimited.

B. Here there is a stop buy orde at $ 151.50 So the Max price at which the shares can be purchased is at $ 151.50.

Hence the maximum loss possible is (151.50 - 150) * 100 = 1.50 * 100 = $ 150