Q. Jim White has sold short 100 shares of Super Stores at a price of $42 per share. He has also simultaneously placed a “good-till-cancelled, stop 50, limit 55 buy” order. Assume that if the stop condition specified by White is satisfied and the order becomes valid, it will get executed. Excluding transaction costs, what is the maximum possible loss that White can have?
- $800.
- $1,300.
- Unlimited.
can anyone explain this question
unable to uderstand good till cancelled order
& stop 50.,Limit 55………………
Is the answer B?
yes
Good Till Cancel is a Validity instruction that we give to the exchange which means that our order will remain standing in the Order Book until it gets filled . Stop Orders are used to limit the loss by going for a market order that we might encounter. So a person who already has sold a share will put a Stop buy order so that he is able to limit his loss and in the same fashion a Stop Sell order is implemented . So here when we Say stop 50.,Limit 55 we mean that our order price shall be Stopped at 50 and a market order at that amount shall be implemented but the market order should not be greater than 55.
Hope this helps !
Oops !Didn’t provide the complete answer. So continuing further here the maximum loss that an investor can face is if the order gets squared up at 55. So maximum loss being (55-42) x No of shares held = 1300 .
Hope this helps !
B is the correct ans … The explanation provided by Gautam is absolutely correct