Question

If Malcolm shorts 500 shares of a stock priced at $15 per share, how much profit or loss will he realize for each $1 change in stock price?

Answer 1

To calculate the profit or loss that Malcolm will realize for each $1 change in stock price, we need to calculate his "beta," or his sensitivity to changes in the stock price.

Malcolm has shorted 500 shares of a stock priced at $15 per share, which means he has a total short position of $7,500 (500 shares x $15 per share). Let's say the stock price changes by $1, so the new price is either $14 or $16 per share.

If the stock price decreases by $1 to $14 per share, Malcolm will make a profit of $1 per share on his short position. Since he has shorted 500 shares, his total profit will be $500 (500 shares x $1 per share).

On the other hand, if the stock price increases by $1 to $16 per share, Malcolm will incur a loss of $1 per share on his short position. Since he has shorted 500 shares, his total loss will be $500 (500 shares x $1 per share).

Therefore, we can conclude that Malcolm's profit or loss for each $1 change in stock price is $500.