Series 7: Options UPDATED ACTUAL Exam
Questions and CORRECT Answers
A customer would buy call contracts because the customer:
A. is bullish on the underlying security
B. is bearish on the underlying security
C. wishes to generate ordinary income
D. wishes to defer taxation of gains on the underlying stock - CORRECT ANSWER -A
An investor writes 1 ABC Jan 45 Call @ $3. The contract subsequently is exercised. The writer
is obligated to:
A. buy stock at $45 per share
B. buy stock at $48 per share
C. sell stock at $45 per share
D. sell stock at $48 per share - CORRECT ANSWER -C
The option premium is:
I the price of the contract
II the strike price of the contract
III determined by supply and demand in the marketplace
IV determined by the Options Clearing Corporation
A. I and III
B. I and IV
C. II and III
D. II and IV - CORRECT ANSWER -A
ABC Jan 50 call contracts are trading in the market at .65. What is the dollar price that a
customer would pay for 2 contracts at this price?
A. $65.00
,B. $130.00
C. $130.50
D. $260.00 - CORRECT ANSWER - The best answer is B. A premium of .65 is $.65 per
share. Equity contracts cover 100 shares, so the total premium is $.65 x 100 = $65.00 per
contract. Since there are two contracts, the total premium would be $130
What is the "out the money" amount of the following contract?
1 ABC Jan 55 Put @ $2
ABC Market Price = $61
A. $2
B. $4
C. $6
D. $8 - CORRECT ANSWER -C
What is the "time premium" amount of the following contract?
1 ABC Jan 55 Put @ $2
ABC Market Price = $61
A. $2
B. $4
C. $6
D. $8 - CORRECT ANSWER -A
This contract is "out the money," so there is no intrinsic value currently. The total premium paid
of $2 represents the "time premium" for this contract
To establish 1 ABC Jan 45 Long Put position, an order ticket must be marked:
, A. opening purchase
B. opening sale
C. closing purchase
D. closing sale - CORRECT ANSWER -A
To liquidate a long put position, the order ticket must be marked:
A. opening purchase
B. opening sale
C. closing purchase
D. closing sale - CORRECT ANSWER -D
The purchase of a call has all of the same characteristics as buying stock EXCEPT:
A. unlimited gain potential in a rising market
B. limited loss potential in a falling market
C. low liquidity risk if the position is to be liquidated
D. no erosion of value as the position is held - CORRECT ANSWER -D
Which of the following options strategies provides a gain equal to the premium in a bear market?
A. Long Call
B. Short Call
C. Long Put
D. Short Put - CORRECT ANSWER -B
The sale of an "at the money" call is a:
A. bull strategy
B. bear strategy
C. neutral strategy
D. bear/neutral strategy - CORRECT ANSWER -D
Questions and CORRECT Answers
A customer would buy call contracts because the customer:
A. is bullish on the underlying security
B. is bearish on the underlying security
C. wishes to generate ordinary income
D. wishes to defer taxation of gains on the underlying stock - CORRECT ANSWER -A
An investor writes 1 ABC Jan 45 Call @ $3. The contract subsequently is exercised. The writer
is obligated to:
A. buy stock at $45 per share
B. buy stock at $48 per share
C. sell stock at $45 per share
D. sell stock at $48 per share - CORRECT ANSWER -C
The option premium is:
I the price of the contract
II the strike price of the contract
III determined by supply and demand in the marketplace
IV determined by the Options Clearing Corporation
A. I and III
B. I and IV
C. II and III
D. II and IV - CORRECT ANSWER -A
ABC Jan 50 call contracts are trading in the market at .65. What is the dollar price that a
customer would pay for 2 contracts at this price?
A. $65.00
,B. $130.00
C. $130.50
D. $260.00 - CORRECT ANSWER - The best answer is B. A premium of .65 is $.65 per
share. Equity contracts cover 100 shares, so the total premium is $.65 x 100 = $65.00 per
contract. Since there are two contracts, the total premium would be $130
What is the "out the money" amount of the following contract?
1 ABC Jan 55 Put @ $2
ABC Market Price = $61
A. $2
B. $4
C. $6
D. $8 - CORRECT ANSWER -C
What is the "time premium" amount of the following contract?
1 ABC Jan 55 Put @ $2
ABC Market Price = $61
A. $2
B. $4
C. $6
D. $8 - CORRECT ANSWER -A
This contract is "out the money," so there is no intrinsic value currently. The total premium paid
of $2 represents the "time premium" for this contract
To establish 1 ABC Jan 45 Long Put position, an order ticket must be marked:
, A. opening purchase
B. opening sale
C. closing purchase
D. closing sale - CORRECT ANSWER -A
To liquidate a long put position, the order ticket must be marked:
A. opening purchase
B. opening sale
C. closing purchase
D. closing sale - CORRECT ANSWER -D
The purchase of a call has all of the same characteristics as buying stock EXCEPT:
A. unlimited gain potential in a rising market
B. limited loss potential in a falling market
C. low liquidity risk if the position is to be liquidated
D. no erosion of value as the position is held - CORRECT ANSWER -D
Which of the following options strategies provides a gain equal to the premium in a bear market?
A. Long Call
B. Short Call
C. Long Put
D. Short Put - CORRECT ANSWER -B
The sale of an "at the money" call is a:
A. bull strategy
B. bear strategy
C. neutral strategy
D. bear/neutral strategy - CORRECT ANSWER -D
