Series 7 – General Securities Representative Exam Options & Derivatives 2

Question 1

An investor writes 1 uncovered (naked) call option. What is their maximum potential loss?

Accepted Answer

Unlimited

Answer

The seller of a naked call faces unlimited loss because the stock price can theoretically rise without limit.

Question 2

What is a 'straddle' in options trading?

Accepted Answer

Buying both a call and a put on the same stock with the same strike price and expiration

Answer

A straddle involves buying both a call and a put with identical strike prices and expiration dates, profiting from large price moves in either direction.

Question 3

What is the intrinsic value of a call option with a strike price of $45 when the stock is trading at $50?

Accepted Answer

$5

Answer

Intrinsic value of a call = Stock price - Strike price = $50 - $45 = $5.

Question 4

Under Series 7 rules, which document must be provided to a customer before or at the time of opening an options account?

Accepted Answer

Options Disclosure Document (ODD)

Answer

The Options Disclosure Document (ODD), titled 'Characteristics and Risks of Standardized Options,' must be provided before or at the time a customer's options account is approved.

Question 5

An investor buys a put option with a $60 strike price and pays a $4 premium. What is the breakeven point at expiration?

Accepted Answer

$56

Answer

Breakeven for a long put = Strike price - Premium = $60 - $4 = $56.

Series 7 – General Securities Representative Exam Practice Test

Series 7 – General Securities Representative Exam Practice Test

Series 7 – General Securities Representative Exam Options & Derivatives 2