Question：
A trader who owns shares of a stock currently trading at $100 per share places a “GTC, stop $90, limit $85 sell” order (GTC means good till cancelled). Assuming the specified stop condition is satisfied and the order becomes executed, which of the following statements is most accurate?
A. The trader faces a maximum realized loss of $15.
B. The order becomes a market order when the price falls below $85 and remains valid for execution.
C. The order will be executed at either $90 or $85.
Answer = A
The order becomes valid when the price falls to, or below, $90. The “limit $85 sell” indicates that the trader is unwilling to sell below $85. Thus, the trader faces a maximum loss of $15 ($100 – $85).
CFA Level I
“Market Organization and Structure,” Larry Harris
Section 6.2
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