Sell Stop Orders: Protecting Long Equity Positions
An investor holding 200 shares of ABC purchased at $40 sees the stock rise to $65. To protect his accrued profit against a sudden market selloff, the investor should enter:
To protect a profit on a LONG stock position, the investor enters a SELL STOP order below the current market price.
Complete Analysis & Legal Rationale
To protect a profit on a LONG stock position, the investor enters a SELL STOP order below the current market price. If the stock declines to the stop price ($62), the order triggers and sells the stock at market, locking in most of the gain.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Sell stop below market protects unrealized profit on long equity.
Buy stop orders protect short positions, not long positions.
Sell limits below market ($60) execute immediately at the prevailing $65 market price.
Market orders execute immediately, terminating the position today.