A trader who has bought a stock at $30 is concerned about a downside movement in the stock and would like to place an order that guarantees selling it at $25. Which of the following will most likely help the trader achieve her objective? (GTC = Good-till-cancelled)
A. “GTC, stop 25, market sell” order
B. “GTC, stop 25, limit 25 sell” order
C. “put option buy” market order with a strike price of 25
the answer is C.
Is the answer C because of the word “guarantee”? Because from my understanding a stop 25 sell order will get you an approximate of 25.
am I right?
Also, I’m a bit confused with stop and limit orders. From my understanding, stop orders don’t necessarily mean limiting losses. For example, if the stock is now at 60, and you want to buy it once it breaks the 65 level, you’d put a 65 stop buy order. Am I right? What about limit orders, what do those do?