SIE (Securities Industry Essentials) Practice Exam

Jane Investor has decided to sell short ABC stock and later buys it back at a lower price. What does she have?

1. Realized gain

2. Unrealized loss

3. Unrealized gain

4. Realized loss

The correct answer is: Realized gain

When Jane Investor sells short ABC stock, she is borrowing stock from her broker and selling it at the current market price. If the price of the stock drops and she buys it back at a lower price, she has made a profit. This is called a realized gain because she has actually made the money and can realize it by selling the stock she borrowed back to her broker. Option B, unrealized loss, would suggest that she has not yet lost any money since she has not closed her position. Option C, unrealized gain, would suggest that she has not yet made any money since she has not closed her position. Option D, realized loss, would suggest that she has already lost money by closing her position at a lower price than what she sold it for. In this scenario, only option A accurately describes the situation - Jane has made a profit by selling short and then buying back the stock at a lower price.