SIE UNIT 16 Placing a Trade

A GTC order is left unexecuted at the end of the trading day on the last business day of April. Which of the following is true? A) The order will be automatically canceled. B) The order will be automatically renewed. C) The customer must give specific instructions to cancel the order so that it will not continue as a good working order. D) The order will only continue working through the opening of the next business day.

A) The order will be automatically canceled. All GTC orders if unexecuted will be automatically canceled on the last business day of April and the last business day of October. If the customer wishes to have the order continue working beyond that date, it must be reentered after the automatic cancelation.

A customer enters the following order: Sell 1,000 shares of XYZ at 23. Which of the following executions would the customer accept? A) 22.50 B) 21.25 C) 23.50 D) 22.90

C) 23.50 When selling at a limit price (23), the customer will accept that price or better (higher for sell orders). Given the customer is willing to accept 23, any price of 23 or higher (in this case 23.50) is an acceptable execution.

An order is entered by a customer to sell at 30 stop limit. Once the order is entered, the stock trades in the following sequence: 32, 29, 31, and 33. The order would be executed and the investor would receive a price of A) 29. B) 32. C) 31. D) 30.

C) 31. This is a sell stop order with a limit of 30. Once the stock trades at 30 or lower, the order is elected (triggered) and becomes a live working order. This occurs at 29. The order will then be executed at its limit (30) or better. This occurs at 31.

Narcissus, Inc., a social media company, has shares selling at $52. Your customer likes the company but thinks it is currently a bit too high and would like to buy the stock if the price declines to $50 per share. Which of the following orders meets this customer's request? A) Buy stop at 55, limit 50 B) Buy puts with a 50 strike C) Buy limit @ 50 D) Buy stop at 50

C) Buy limit @ 50 This order instructs the broker to buy at a price of $50 or better. Entering a buy stop at 50 would trigger the order immediately, becoming a market order to buy at the current price. The stop limit would not trigger until the stock rose to 55, then it would be an order to buy at 50, so the stock would have to rise to at least 55 then drop to 50 or below. Owning the puts gives him the right to sell the stock at the strike of 50, not buy it.

Your client, Randall Stephens, has been bearish on LMN stock and sold it short several months ago. He now believes the company is in a good position for a turnaround and wants to change his strategy on LMN. What should he do to implement his new strategy? A) Buy an equal number of shares to his existing short position B) Sell an equal number of shares to his existing position C) Buy to close his existing position and open a new long position in the stock D) Sell short QRS to close his existing position

C) Buy to close his existing position and open a new long position in the stock Buying to close will eliminate his existing position, but if he now wants to engage in a bullish strategy on LMN, he would need to buy additional shares.

Your client, Alice Tate, with no other positions in her margin account, is bearish on ABC stock. Which of the following transactions would you recommend? A) Sell ABC to close B) Buy ABC to open C) Sell ABC to open D) Buy ABC to close

C) Sell ABC to open Because there are no other positions, this would be an opening transaction and selling the stock would be bearish.

Your client, Jane Anderson, has owned QRS for a few years but has now turned bearish on QRS. What transaction would you recommend? A) Buy QRS to open B) Buy QRS to close C) Sell QRS to close D) Sell QRS to open

C) Sell QRS to close Because Anderson already owns the stock, this would be a closing transaction, and because she is bearish it would be a sell.

A customer enters a market order. This type of order can be A) a buy or sell order to be executed at a specified limit. B) a buy order only to be executed at the next available price. C) a buy or sell order to be executed at the next available price. D) a sell order only to be executed at a specified price.

C) a buy or sell order to be executed at the next available price. Market orders can be either directions to buy or sell and are executed at the next available price. Market orders have no limits regarding price paid (buy) or received (sell).

Which of the following would be required for a good 'til canceled order to remain in force for more than six months? A) Nothing; it stays on the books until the customer cancels it B) The specialist on the NYSE would need to reconfirm the order C) The broker-dealer would need to reconfirm the order for it to remain in force D) The customer would need to reconfirm the order

D) The customer would need to reconfirm the order Good 'til canceled orders historically have been canceled the end of April and October. Some firms will cancel them more frequently, but for the order to stay in effect longer than six months, the customer would need to reinstate the order.

Which of the following best describes how a sell stop at 39 order would be filled? A) The next price above 39 after the market rises to 39 B) The next available price after the market price rises to 39 C) The next price below 39 after the market falls to 39 D) The next available price after the market price falls to 39

D) The next available price after the market price falls to 39 Sell stop orders are placed below the current market price and become market orders once the price touches or passes through the stop price.

Which of the following best describes how a buy stop at 39 would fill? A) The next available price after the market price falls to 39 B) The next price above 39 after the market price rises to 39 C) The next price below 39 after the market price falls to 39 D) The next available price after the market price rises to 39

D) The next available price after the market price rises to 39 A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

Your customer is quite nervous about the stock market but expresses his belief that equities are still the place to save for retirement over the long term. He places a trade for 500 shares of an equity index fund. Overall your customer is likely A) a tiger. B) a bear. C) unsure of where the market is going. D) a bull.

D) a bull.

An order that when triggered becomes a market order is called a A) stop limit order. B) market order. C) limit order. D) stop order.

D) stop order.

A bearish sentiment means that a person believes A) the firm appears to be slow and lumbering. B) the security will increase in value. C) the company will devour its competition. D) the security will decline in value.

D) the security will decline in value.

Your client, Mary Quinn, wants to place an order to sell a stock in her portfolio when the current price is 45, but she is only willing to sell if she can sell for at least 47. Which order should she place? A) A sell limit order B) A sell stop order C) A market order D) A sell stop limit order

A) A sell limit order Sell limit orders are placed above the current market price and fill at the stated price or higher. Market orders fill at the next available price. Sell stop and sell stop limit orders are not triggered until the market drops to or through the stop price.

Caleb McCann got a tip from his brother Nate on XYZ stock two months ago. Caleb hasn't previously been investing in the stock market but has been watching this stock since he got the tip from his brother. Caleb is now very bullish on XYZ and wants to place a trade. Which of the following would you recommend? A) Buy XYZ to open a long position B) Sell XYZ to open a short position C) Buy XYZ to close out a short position D) Sell XYZ to close a long position

A) Buy XYZ to open a long position Because McCann has no existing position, this would be an opening transaction, and if bullish on the stock it, would be a purchase.

Distinguishing between a sell stop order and a sell stop limit order, which of the following are true? I. The sell stop limit order becomes a sell limit once triggered. II. The sell stop order becomes a sell limit order once triggered. III. The sell stop limit order becomes an order to sell at the market triggered. IV. The sell stop order becomes an order to sell at the market triggered. A) I and IV B) II and IV C) I and III D) II and III

A) I and IV Stop orders become market orders once triggered, and stop limit orders become orders to sell at the specified limit once triggered. Stop or stop limit orders can be either buys or sells.

If your client, Marvin Blackwell, places a sell stop order at 38 when ABC is trading at 40, at which of the following prices could the order be filled? I. 38 II. 39 III. 40 IV. 41 A) I, II, III, and IV B) III and IV C) I and II D) II and III

A) I, II, III, and IV A sell stop order is an instruction to sell at the market when a trade occurs at or below the stop price. If ABC stock's price drifted down and trades at 38, the stop is triggered. Even if it leaps over 38 to 37.95, for example, the stop would trigger. Remember that a stop, when triggered, becomes a market order. Market orders may fill at any price.

Your customer, Ellesha, places a sell stop at 50 on DEZ stock while it is trading at $53 per share. After the order is elected, Ellesha may sell her shares at which of the following prices? I. $48 II. $49 III. $50 IV. $51 A) I, II, III, and IV B) III and IV C) I, II, and III D) I and II

A) I, II, III, and IV Once triggered (i.e., elected), this becomes a market order to sell. Market orders may sell at any price.

In left unexecuted, a good til cancel (GTC) order will automatically be canceled when? A) On the last business day of April and the last business day of October B) On the last business day of June and the last business day of December C) On the cancel date specified by the customer at the time the order is entered D) On the first business day of April and the first business day of October

A) On the last business day of April and the last business day of October GTC orders are valid until executed or canceled. Any GTC orders left unexecuted are automatically canceled on the last business day of April and the last business day of October. If the customer wishes to have the order remain working beyond those specific days, the customer must reenter the order.

Which of the following best describes how a market order to sell would fill if placed when the price of the stock is a 40? A) The next available price B) The next available price above 40 C) Only at 40 D) The next available price below 40

A) The next available price Market order always get the next available price, regardless of if it is a buy or sell and regardless of price.

Which of the following best describes how a market order to buy would fill if placed when the market price of the stock was at 40? A) The next available price B) The next available price below 40 C) The next available price above 40 D) Only at 40

A) The next available price Market order always gets the next available price, regardless of if it is a buy or sell and regardless of price.

John Christensen places a buy limit order at 42 when the market price of the stock is at 45. Which of the following best describes how the order would fill? A) The order can only be filled at a price of 42 or lower B) The order would be filled immediately because the market price is already above 42 C) The order would be filled between when the stock price is between 42 and 45 D) The order would be filled at the next available price after the stock price drops to 42

A) The order can only be filled at a price of 42 or lower Buy limit orders are placed below the current market price and fill at the stated price or lower.

Your customer places an order to buy 500 shares of Narcissus, Inc., (the ticker is NCS) at $50 per share fill-or-kill (FOK). When the order is entered, there are 450 shares available at $50 per share. What happens to the order? A) The order will be canceled and nothing is done. B) She will do nothing, but the order stays open until the end of the day if more inventory becomes available. C) She will buy 450 shares, the rest of the order will be canceled D) She will buy 450 shares, and the remainder of the order remains open until filled.

A) The order will be canceled and nothing is done. A fill-or-kill order (FOK) instructs that the order be filled in its entirety and immediately. As there are insufficient shares available to fill this order, it will be canceled and nothing is done.

Narcissus, Inc., a social media company, has shares selling at $50. Your customer is bearish. He would like to sell the stock short, but not until it retreats at least 10% from its current price. In order to catch the drop he could A) enter a sell short at stop 45. B) enter a buy stop at 45. C) sell calls at strike price of 45. D) enter a sell long at 50.

A) enter a sell short at stop 45. The uncovered call does not help. If exercised he would have to buy the shares before he delivers them, leaving him flat (no position). The buy stop at 45 would trigger immediately and would become a market order to buy. As there is nothing that indicated he owns the shares now, the sell long would be rejected. The sell stop short at $45 would become a market order to sell the stock short when it trades at 45.

An investor has her registered representative enter a sell stop limit order at 50. Following the order entry, trades occur at 52, 50, 49, 51, and 53. The investor would receive A) 53 B) 51 C) 50 D) 49

B) 51 This is really two orders. The first is to stop at 50. That is, once the stock trades at 50 or lower, the order is elected (triggered) and becomes a live working order. That order is to sell at 50 or better. Therefore, the first time the stock hits 50 (or less), is the trade at 50. That triggers the sell limit order to sell at 50 or better. The next trade is at 49 and that is not an acceptable price given the limit order set at 50. The following price, however, at 51, is the next acceptable price after the order is triggered and that is where the order would be executed.

A buy stop order at 39 could fill at which of the following prices? I. 38 II. 39 III. 40 IV. 41 A) II and III B) I, II, III, and IV C) I and II D) III and IV

B) I, II, III, and IV A buy stop order becomes a market order and fills at the next available price once it touches or passes through the stop price.

The market for Dizzy Rides Inc., is at $52 per share. Your customer would like to sell his shares for $55, and believes the stock will climb to that level in the next two to three weeks. What order should he place? A) Sell limit 55 AON B) Sell limit 55 GTC C) Sell limit 55 FOK D) Sell limit 55

B) Sell limit 55 GTC Only the good-til-canceled (GTC) order will live past today. All the others will cancel if unexecuted by the end of the day. If there is no qualifier then it is a day order. Fill-or-dill (FOK) orders that cannot be filled immediately or cancelled. An all-or-none order would need to also be marked GTC to go into the next day.

A client entering a sell limit order at 43 would accept which of these trades? A) 42 B) 42.50 C) 42.90 D) 44

D) 44 A sell limit at 43 means the investor will only accept a price of 43 or better (higher). Certainly, if the client is willing to sell at 43, she would be even happier to receive 44.

A market order to buy must be executed when and at what available price? A) Within 24 hours, at the highest B) Within 24 hours, at the lowest C) Immediately, at the highest D) Immediately, at the lowest

D) Immediately, at the lowest Market orders carry the idea of immediate execution at the best available price. A market order to buy would require execution at the lowest available price.