Series 7: Options ACTUAL Exam Questions
and CORRECT Answers
Long an ABC Apr 60 call
short an ABC Apr 70 call is a - CORRECT ANSWER - For call options with the same
expiry month, the lower strike price will always have a higher value. In this case, the investor is
long the higher valued option.
A client writes 1 Jan 60 put
buys 1 Jan 50 put. This is a - CORRECT ANSWER - Bull spread
Credit spread
Which of the following options strategies could be used by an investor who is bearish on a
stock? - CORRECT ANSWER - Debit put spread
Long combination straddle
In any spread, put or call if you are buying the lower strike price - CORRECT ANSWER -
you are a bull
When XYZ stock trades at 40 and an XYZ Oct 35 call trades at 5, which of the following is
TRUE? - CORRECT ANSWER - The TV is zero
TV is premium - IV
A customer is long 10 XYZ Jan 60 calls, and XYZ declares a 20% stock dividend. On the ex-
date, the customer will have: - CORRECT ANSWER - 10 XYZ Jan 50 calls (120 shares
per contract)
Your customer tells you that she sees the exchange rate for the British pound in the spot market
is listed at 148.47. What do you tell her when she asks you what this means? - CORRECT
ANSWER - 1 pound = 1.4847 us cents
, Customers seeking to open an options account may be granted approval by the: - CORRECT
ANSWER - branch manager initially, with the subsequent approval of a ROP.
The writer of a combination expects the market to be: - CORRECT ANSWER - Stable
The buyer of a combination expects the market to be: - CORRECT ANSWER - Volitle
Buys 1 XYZ Nov 70 put
Sells 1 XYZ Nov 60 put when XYZ is selling for 65, this position is a: - CORRECT
ANSWER - Bear spread: This put spread is established at a debit because the customer
pays more for the 70 put than she receives for the 60 put. A debit spread is a net buy, while a
credit spread is a net sale. Therefore, a debit put spread is like buying a put, which is bearish.
A customer buys 100 shares of ABC at 56.50 and writes 1 ABC Aug 60 call at 2. If the call is
exercised, the consequences are - CORRECT ANSWER - a cost basis of $56.50 per share
sales proceeds of $62 per share.
An investor is short stock at 70. If the stock's market price is 40 and the investor anticipates the
price will continue to decline, to hedge against a rise in the price the investor should: -
CORRECT ANSWER - Buy a call
Which of the following strategies would most effectively protect an investor with a short stock
position? - CORRECT ANSWER - Buy a call
Call options are in-the-money - CORRECT ANSWER - whenever the market price is
greater than the strike price.
Put options are in-the-money - CORRECT ANSWER - whenever the market price is lower
than the strike price.
and CORRECT Answers
Long an ABC Apr 60 call
short an ABC Apr 70 call is a - CORRECT ANSWER - For call options with the same
expiry month, the lower strike price will always have a higher value. In this case, the investor is
long the higher valued option.
A client writes 1 Jan 60 put
buys 1 Jan 50 put. This is a - CORRECT ANSWER - Bull spread
Credit spread
Which of the following options strategies could be used by an investor who is bearish on a
stock? - CORRECT ANSWER - Debit put spread
Long combination straddle
In any spread, put or call if you are buying the lower strike price - CORRECT ANSWER -
you are a bull
When XYZ stock trades at 40 and an XYZ Oct 35 call trades at 5, which of the following is
TRUE? - CORRECT ANSWER - The TV is zero
TV is premium - IV
A customer is long 10 XYZ Jan 60 calls, and XYZ declares a 20% stock dividend. On the ex-
date, the customer will have: - CORRECT ANSWER - 10 XYZ Jan 50 calls (120 shares
per contract)
Your customer tells you that she sees the exchange rate for the British pound in the spot market
is listed at 148.47. What do you tell her when she asks you what this means? - CORRECT
ANSWER - 1 pound = 1.4847 us cents
, Customers seeking to open an options account may be granted approval by the: - CORRECT
ANSWER - branch manager initially, with the subsequent approval of a ROP.
The writer of a combination expects the market to be: - CORRECT ANSWER - Stable
The buyer of a combination expects the market to be: - CORRECT ANSWER - Volitle
Buys 1 XYZ Nov 70 put
Sells 1 XYZ Nov 60 put when XYZ is selling for 65, this position is a: - CORRECT
ANSWER - Bear spread: This put spread is established at a debit because the customer
pays more for the 70 put than she receives for the 60 put. A debit spread is a net buy, while a
credit spread is a net sale. Therefore, a debit put spread is like buying a put, which is bearish.
A customer buys 100 shares of ABC at 56.50 and writes 1 ABC Aug 60 call at 2. If the call is
exercised, the consequences are - CORRECT ANSWER - a cost basis of $56.50 per share
sales proceeds of $62 per share.
An investor is short stock at 70. If the stock's market price is 40 and the investor anticipates the
price will continue to decline, to hedge against a rise in the price the investor should: -
CORRECT ANSWER - Buy a call
Which of the following strategies would most effectively protect an investor with a short stock
position? - CORRECT ANSWER - Buy a call
Call options are in-the-money - CORRECT ANSWER - whenever the market price is
greater than the strike price.
Put options are in-the-money - CORRECT ANSWER - whenever the market price is lower
than the strike price.
