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You entered a short position in TSLA at $500 per share. You want to ensure that...

You entered a short position in TSLA at $500 per share. You want to ensure that you will not lose more than $50 per share from your short position. What price contingent orders will you place in TSLA to ensure your potential losses are capped at $50 per share?

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Expert Solution

Short position means that the speculator has sold the stock at $500 and aims to profit when the stock price falls below $500. If the stock price rises, the short seller will lose money. Here the maximum loss that the short seller can bear is $50. Hence if the price of the stock reaches $550 then the short seller must close out on the position

In order to automate this, the short seller must put a buy stop loss order at $550

jeff jeffy answered 2 years ago
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