Ms.Brown sold short 100 shares of common stock at $78 per share.The price has declined to $69.The outlook for the stock is mixed,so she would like to cover her short position if the stock moves up as much as $1,but hold if it continues down.Ms.Brown should place a:
A)sell stop order at $70.
B)buy stop order at $70.
C)sell limit order at $70.
D)buy limit order at $70.

Question

Quizplus · Accepted Answer

Ms. Brown wants to cover her short position if the stock moves up as much as $1, so she should place a buy stop order at $70. This means that if the price of the stock reaches $70 or higher, the order will be executed and Ms. Brown will buy back the shares to cover her short position. A sell stop order at $70 would be executed if the stock declines further, which is not what Ms. Brown wants. A sell limit order at $70 would be executed if the stock rises to $70, which is not what Ms. Brown wants. A buy limit order at $70 would only be executed if the stock declines further, which is also not what Ms. Brown wants.

MsBrown Sold Short 100 Shares of Common Stock at $78