SIE practice questionhardShort Selling Risks
Which of the following is the maximum potential loss for an investor who sells short 200 shares of a stock at $75 per share?
- A$7,500
- B$75 per share
- CTheoretically unlimited✓ Correct answer
- D$15,000
Explanation
Why C — Theoretically unlimited
A short seller's maximum loss is theoretically unlimited because there is no cap on how high a stock's price can rise. The short seller must eventually buy back the shares to close the position, and if the stock soars to $200, $500, or higher, the losses grow without limit. This contrasts with a long position, where the maximum loss is limited to the purchase price (the stock can only go to $0).
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Trading & Settlement questions
- A short seller who sold stock at $50 places a buy stop order at $55. What is the purpose of this order?
- An investor sells short 100 shares of XYZ at $60 per share. If the stock drops to $40, what is the investor's profit…
- Which type of order guarantees execution but does NOT guarantee price?
- When a broker-dealer executes a trade from its own inventory for a customer, the firm is acting in what capacity?