stock order to against loss ? against, only, question, contract, position

prav_Cfa7

Currently Stock A : trading with price $40
An Investor attempting to protect against loses of more than 10% on a short position in stock A , they should place a

A. Stop buy order at $44
B. Stop sell order at $36
c. Limit buy order at $44


my answer is B and it is wrong

My question is when i'm in short position mean i'm holding it or only short position in forward contract (derivative) . Because if i'm holding it only way to against loss is place a stop sell order at $36

JoeyDVivre

short selling is when you borrow a stock, sell it, and attempt to buy it back at a cheaper price. then you give the stock back to the original holder and pocket the difference.

ie -- you are going to make money when the stock goes down and lose it when the stock goes up. So the answer is A. you would place a stop buy order at $44 so that your maximum loss is $4. (you sold the stock at $40 and then bought it back at $44.)

hope that helps

kamara5

To add to what Kiakaha said, you place the sell order when you have a stock. Since you are in short position, you don't own the stock. That's one more reason why choice B is wrong.