Short Selling Quiz: Borrow, Rules and Risk

A short looks like a long turned upside down, right up until the costs and rules show up. Test yourself on the borrow, the price test, the dividend you owe and the stop that protects you.

AI-assisted, reviewed by Beth Ruelos →

Questions: 10
Level: Intermediate
Time: 5 min

Question 1 of 10

1Under the SEC's Regulation SHO, what has to be true before a broker-dealer can accept your short sale order?

A The account must have been open for at least 90 days B The stock must be above its prior close for the day C The shares are borrowed, arranged, or reasonably expected to be borrowable D The stock must appear on an exchange list of shortable names

2You short 2,000 shares at 15.00 in a hard-to-borrow stock with a quoted borrow rate of 18 percent a year. On a 360-day basis, charged on position value, what's the daily fee?

A 15.00 B 150.00 C 5,400.00 D 1.50

3You're short at 42.00 with a buy stop-limit to cover: stop 44.00, limit 44.40. Takeover news breaks overnight and the stock opens at 49.00. Where does that leave you after the open?

A Covered at 44.40, the limit you set B Covered at the open, somewhere near 49.00 C Covered at 44.00, the stop you set D Still short, with a buy limit at 44.40 resting unfilled

4A stock closed Monday at 55.00. Under SEC Rule 201, at what price does the short sale restriction kick in on Tuesday, and how long does it last once triggered?

A 49.50, until the stock trades back above 49.50 B 49.50, for the rest of Tuesday and all of Wednesday C 50.00, for the rest of Tuesday only D 44.00, for the rest of Tuesday and all of Wednesday

5Rule 201 is active on a stock quoted 24.10 bid and 24.16 ask. Which short sale can execute under the price test?

A A short sale at 24.10 B A short market order hitting the bid C A short sale at 24.12 D A short sale at 24.09

6You're short a stock that has just dropped 12 percent from yesterday's close, so Rule 201 is active. Then the stock turns and hits your buy stop. What does the rule do to your cover?

A Nothing, since buying to cover is a purchase B It blocks the cover until the next session C It lets the cover fill only above the bid D It converts your buy stop into a limit order

7A stock has 60,000,000 shares outstanding, a float of 45,000,000, short interest of 9,000,000 and average daily volume of 2,000,000. What's short interest as a percent of float, and what's days to cover?

A 15 percent and 4.5 days B 20 percent and 0.22 days C 4.5 percent and 20 days D 20 percent and 4.5 days

8You're short 400 shares at 50.00. The stock pays a 0.75 dividend and closes at 50.00 the day before the ex-date, then other news lifts it to 50.40 at the open. Counting the dividend you owe, how much worse off are you?

A 160 B 460 C 300 D 140

9You short 250 shares at 48.20 with a buy stop at 49.80, planning to risk 400. The stock gaps up and opens at 55.00, and the stop fills at the open. What's the loss?

A 400 B 1,300 C 1,700 D 1,750

10The lender of the shares behind your short recalls them, and your broker can't find a replacement borrow. What can happen to your position?

A It stays open while the broker keeps searching B It converts into a long position at the current price C You pay a higher fee and the short stays open D The broker can buy shares to close it at a time it chooses

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