Question

You sold short JCP stock at $80 per share. Your losses could be minimized by placing a __________. a. limit-sell order b. limit-buy order c. stop-loss order d. stop-buy order e. None of the above.

Answer 1

Answer:

The correct answer is letter "D": stop-buy order.

Explanation:

A stop-buy order is an order to purchase a stock at a particular price above its current market price. By placing a stop-buy order, the investor sets the price at which he will buy the stock in advance, thus eliminating the risk of missing the price point, the opportunity to buy a stock with good returns, or covering a short position at a reasonable loss instead of allowing the negative trade balance to rise.

So, setting a stop-buy order will help the trader exit the transaction at a specific price to cover losses of a short position at a reasonable risk rate.