A speculator thinks that a particular share that is now selling at $110 is likely to decrease in price to $108 in four days. The speculator does not own the share.

(a) Represent on a time line the whole strategy she could initiate at once using covered short-selling. [Each transaction should show the order and the delivery. To avoid overcrowding the time line, represent the order and the trade as one operation that you call order.]

(b) Assume she manages to sell at $110 and the price of the share four days later is actually $112. Calculate the profit the strategy in (a) generates [Show your working]. Interpret your answer.

(c) Describe under which circumstances the strategy above would be illegal.

(d) Discuss what would be the challenge(s) of this strategy if a large number of speculators wanted to implement that same strategy.