Stop Order

B is correct. A sell stop order at $70 (below the current $72 market price) would protect most of Rebecca's gains. If the stock falls to $70, the stop triggers and becomes a market order to sell, limiting her loss of the $12 gain to approximately $2 per share (selling near $70 instead of the $72 current price). This allows her to stay in the position if the stock continues rising while providing downside protection.

A is incorrect because buy stop orders are placed above the current market price and are used to protect short positions or enter on upward breakouts, not protect long positions. C (sell limit at $70) would only execute if the price rises to $70 or higher, but the stock is already at $72, so this order would not trigger on a decline and provides no downside protection. D (buy limit at $70) would attempt to buy more shares if the price falls, increasing her position rather than protecting it.

B is correct. When a stop order is triggered (when the stock trades at or through the stop price), it immediately becomes a market order and executes at the next available price. This means there is no guarantee the execution price will equal the stop price; it could be better or worse depending on market conditions.

A describes a stop-limit order, not a regular stop order. Stop-limit orders become limit orders (not market orders) after triggering, providing price protection. C is incorrect because triggered stop orders do not cancel; they execute as market orders. D is incorrect because stop orders do not guarantee execution at the stop price; they only guarantee the order will trigger at that price and then execute at whatever the next available market price is.

B is correct. The sell stop order triggers when the stock trades at or through $35.00. Once triggered at the $35.00 trade, it becomes a market order and executes at the next available price, which is $34.50 in this sequence. The execution price is not guaranteed to be the stop price.

A is incorrect because stop orders do not guarantee execution at the exact stop price; they trigger at that price and then execute as market orders at the next available price. C ($34.80) occurs after the likely execution at $34.50. D is incorrect because the order does trigger when the stock trades at $35.00, then executes at the next trade ($34.50). The sell stop order successfully triggered and executed, just not at the stop price itself.

C is correct (the EXCEPT answer). This statement is FALSE. Stop orders do NOT guarantee execution at the specified stop price. The stop price only triggers the order; once triggered, the order becomes a market order that executes at the next available price, which may be significantly different from the stop price, especially in volatile or illiquid markets.

A is accurate: buy stop orders are always placed above the current market price and are used to protect short positions or enter on upward breakouts. B is accurate: sell stop orders (also called stop-loss orders) placed below the current market price are commonly used to protect gains or limit losses on long stock positions. D is accurate: the defining characteristic of stop orders is that they become market orders once the stop price is triggered, which distinguishes them from stop-limit orders.

B is correct. Statements 1, 3, and 4 are accurate.

Statement 1 is TRUE: Buy stop orders must be placed above the current market price. Since ABC is trading at $42, placing the buy stop at $47 (above market) is correct. This is the "bad" side for a short seller (where he does not want the price to go).

Statement 2 is FALSE: Stop orders do NOT guarantee execution at the stop price. If ABC trades at $47, the order triggers and becomes a market order that executes at the next available price, which could be $47.10, $47.50, or any other price depending on market conditions. There is no price guarantee.

Statement 3 is TRUE: The buy stop at $47 limits the loss on the short position. If ABC rises to $47, the stop triggers and the investor buys back the shares (closing the short) at approximately $47, limiting his loss to about $2 per share ($47 buyback minus $45 short sale) instead of potentially unlimited losses if the stock continues rising.

Statement 4 is TRUE: All stop orders become market orders when triggered. This is the fundamental characteristic that distinguishes stop orders from stop-limit orders (which become limit orders).