Question

You have been watching a stock which is currently trading at RM50 per share. You would like to buy the stock if it were a little less expensive, at RM47 per share. You believe that the stock price will go to RM70 by year-end, and then level off or decline. You decide to place a limit order to buy 100 shares of the stock at RM47, and a limit order to sell it at RM70. It turns out that you were right about the direction of the stock price, and it goes straight to RM75.

a) Determine your current position. 

b) Calculate your gains/loss of your stock holding.

Answer 1

There are total of two orders placed, those are

(i) Limit buy order for 100 shares at RM47 per share

(ii)Another one is a Limit sell order for 100 shares at RM70

and price increases from Rm50 to Rm 75, without touching the price of RM47 due to that purchase order not being placed.

and sell order has placed at RM70.

As a result of this, the current open position would be a short sale of 100 stars at RM70.

Current market price is RM75, so we have to buy order at RM75 and as a result of this RM5 loss occurs

Loss on stock = no.of shares*(sell price- buy price)

=100*(70-75)

Loss on stock = RM 500.