What type of order do you place to protect yourself

Reference no: EM133430442

Question: You short 8,000 shares of Z Corp. stock at $37/share. The initial margin requirement is 50% and the maintenance margin is 32%. You wish to place a protective order with your broker to get you out of the position if the stock rises to the price at which you would get a margin call sometime over the course of the coming week.

(i) What type of order do you place to protect yourself and what is the price level of this order?

After a week's time you decide to cancel this protective order because the stock's price has fallen to $32/share. Suddenly, it jumps by 50% to $48 on news it is being taken over by XY Corp. How much money do you need to add to you account to bring it back into margin compliance?

What will happen if you decide to ignore this margin call (i.e., avoid your broker altogether)?

Reference no: EM133430442

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