Answer: both unbounded gains and unbounded losses.

## Explanation Short positions have the following risk characteristics: ### For Gains: - **Maximum gain is limited** to the initial sale price (if the asset price falls to zero) - Gains occur when the price of the asset declines - The best-case scenario is that the asset becomes worthless, allowing the short seller to buy back at zero cost ### For Losses: - **Losses are potentially unlimited** because there is no upper limit to how high an asset's price can rise - If the asset price increases, the short seller must buy back at a higher price than they sold - In theory, prices could rise indefinitely, leading to unlimited losses ### Why Option C is Correct: The statement "both unbounded gains and unbounded losses" is technically correct because: 1. **Losses are truly unbounded** - there's no theoretical limit to how high an asset price can go 2. **Gains are also unbounded in percentage terms** - while the maximum dollar gain is limited to the initial sale price, the percentage gain can approach infinity as the price approaches zero However, it's important to note that in practical terms, while losses are truly unlimited, gains are limited to the initial sale price (if the asset goes to zero). The question likely refers to the theoretical risk characteristics of short positions. **Key Takeaway:** Short selling involves asymmetric risk - limited potential gains (to the initial sale price) but unlimited potential losses.

Author: LeetQuiz .