Options & Derivatives Flashcards
6 cards from real Series 7 – General Securities Representative Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Options & Derivatives flashcards as text
Which of the following best describes a 'bull call spread'?
Answer: Buying a call at a lower strike and selling a call at a higher strike
A bull call spread involves buying a call at a lower strike price and selling a call at a higher strike price, limiting both potential gain and cost.
What happens to an options contract when the underlying stock pays a cash dividend?
Answer: No adjustment is made to listed options
Listed stock options are not adjusted for ordinary cash dividends; adjustments are only made for extraordinary distributions like stock splits.
A customer wants to hedge a long stock position against a short-term decline. Which options strategy is most appropriate?
Answer: Buy a put option on the stock
Buying a put option provides downside protection by giving the holder the right to sell shares at the strike price if the stock falls.
What is the maximum gain for the writer (seller) of a covered call?
Answer: The premium received plus the difference between the stock purchase price and strike price
The maximum gain for a covered call writer is the premium received plus any appreciation in the stock up to the strike price.
Which Greek measures the rate of change in an option's price relative to a $1 change in the underlying stock price?
Answer: Delta
Delta measures how much an option's price is expected to change for every $1 move in the underlying security.
An investor holds a long put option with a $40 strike price and the stock expires at $0. What is the maximum gain (ignoring premium paid)?
Answer: $40 per share ($4,000 total)
The maximum gain on a long put is achieved when the stock falls to $0; gain = strike price × 100 = $40 × 100 = $4,000.
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Sources & references
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- finra.org — Eligibility, fees, passing score, score validity, test dates, retake policy, score release, exam format, exam information · verified Oct 2026
- prometric.com — Test delivery · verified Oct 2026