SERIES 9: MASTERY AND PRACTICE EXAM QUESTIONS AND ANSWERS | 100% PASS

SERIES 9: MASTERY AND PRACTICE EXAM QUESTIONS AND ANSWERS | 100% PASS The Characteristics and Risk of Standardized Options is the official disclosure document that must be provided to option customers at or before account approval. This document is designed to 1. protect investors from market risk. 2. fulfill the prospectus delivery requirements of the Securities Act of 1933. 3. disclose the risk of investing in options. 4. provide useful option strategies. A) III and IV B) I, II, III, IV C) I and II D) II and III Explanation TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 2/101 The options clearing corporate disclosure document, The Characteristics and Risk of Standardized Options, creates an exemption from the prospectus delivery requirements of the Securities Act of 1933. Its primary purpose is to disclose the risk of option investing. It does not protect against market risk, nor does it provide strategies. - Answer️️ -D 2 & 3 Within how many days must an options-related complaint be submitted to FINRA? A) Customer complaints must be reported to FINRA within 15 days at the end of the calendar quarter in which the complaint was discovered. B) Customer complaints must be reported to FINRA within 10 calendar days. C) Customer complaints must be reported to FINRA within 30 business days. D) Customer complaints must be reported to FINRA within 15 business days. Explanation FINRA rules require members to file information on customer complaints, electronically, within 15 days of the end of each calendar quarter. LO 4.c - Answer️️ -A Regulation SHO has a circuit breaker test that when triggered prohibits short sale orders TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 3/101 A) for the security until a bona fide locate has been established. B) for the remainder of the trading day and the day following. C) until close-out requirements have been made. D) for a period until the price of the security rises above the triggered limit. Explanation Exchanges, ATSs, and trading centers have policies to restrict short selling on a covered security that has a 10% decline in any one day. The purpose of the rule is to prevent a piling-on effect in the marketplace. Short exempt orders may still trade. - Answer️️ -B If an assignment notice is received on Tuesday, July 12, for a short call on a covered write position, the stock settlement (delivery) would occur on A) Thursday, July 14. B) Wednesday, July 13. C) Friday, July 15. TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 4/101 D) Monday, July 11. Explanation The settlement will take place on Thursday, July 14, T + 2. The assignment date becomes the trade date for the stock, and regular-way settlement is T + 2 (trade date plus two days). LO 7.d - Answer️️ -A A client of the firm is in violation of the position limit rule of 25,000 option contracts if A) the client's account has 20,000 short calls and 10, 000 short puts. B) the client's account has 20,000 long calls and 10, 000 long puts. C) the client's account has 20,000 long calls and 10,000 short puts. D) the client's account has 20,000 short calls and 10, 000 long calls. Explanation The OCC limits the number of options that an individual investor can control on the same side of the market, long calls, and short puts, or short calls and long puts. 20,000 long calls and 10,000 short puts are both on the same side of the market (bullish) for an aggregate position of 30,000 contracts, which is a violation. TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 5/101 LO 6.b - Answer️️ -C Market and marketable orders sent to the exchange nonelectronically are required to contain all the following information except A) the number of contracts and strike price. B) the customer name and account number. C) the expiration month and year. D) buy or sell, put, or call. Explanation The order at least must have at least the following specific information with respect to the order: (i) the option symbol, (ii) the expiration month, (iii) the expiration year, (iv) the strike price, (v) buy or sell, (vi) call or put, (vii) the number of contracts, and (viii) the Clearing Trading Permit Holder. The customer name and account number are not required for trading floor or exchange execution. LO 6.h - Answer️️ -B The phrase public appearance as defined by FINRA, means participation in any of the following except A) TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 6/101 a written statement distributed to 15 institutional clients. B) a radio, television, or print media interview. C) the writing of a print media article, in which a research analyst makes a recommendation or offers an opinion concerning an equity security. D) participation in a conference call, seminar, forum (including an interactive electronic forum) or other public speaking activity before 15 or more persons. Explanation A written statement distributed to 15 institutional clients would be a communication and would not be considered a public appearance. LO 8.f - Answer️️ -A A branch manager receives an incomplete options application from a broker. The branch manager should A) document the incident, return the application to the broker requesting all the required information and possibly recommend training by the ROP. B) contact the customer to make sure all the information is accurate and complete. C) TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 7/101 have the broker complete the rest of the application. D) have the broker and the ROP contact the customer for the remaining information. Explanation The branch manager and the ROP should not contact the customer regarding an incomplete application. The branch manager should return the application to the broker requesting the application be filled out completely. He should also document the incident and possibly recommend further training by the ROP. LO 1.f - Answer️️ -A The following items are required to be disclosed before opening an option account except A) marital status (including number of dependents). B) education (highest level). C) employment Status (name of employer, self-employed, or retired). D) investment experience (number of years and type of transactions). Explanation TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 8/101 FINRA requires investment objectives (safety of principal, income, growth, trading profits, and speculation), employment status (name of employer, self-employed, or retired), estimated annual income from all sources, estimated net worth (exclusive of family residence), estimated liquid net worth (cash, securities, and other), marital status (including number of dependents), and age. Education is not a requirement. LO 1.c - Answer️️ -B A customer has purchased 2 XYZ Sept 40 puts and has sold 2 XYZ Sept 35 puts. This position would be A) a bullish debit spread. B) a bearish debit spread. C) a bearish credit spread. D) a bullish credit spread. Explanation The position would be a bearish debit spread. Buying the $40 puts and selling the further out-of-the-money puts would be a debit spread. In puts, the higher strike price is more costly than a lower strike price, thus creating a debit. A debit put spread is TITLE: EMILLYCHARLOTTE 2024/2025 ACADEMIC PERIOD OWNER: EMILLYCHARLOTTE COPYRIGHT STATEMENT: ©2024 EMILLYCHARLOTTE. ALL RIGHTS RESERVED FIRST PUBLISHED: SEPTEMBER 2024 9/101 bearish, being more profitable as the underlying stock drops in price. On the reverse side, a debit call spread is bullish. LO 11.e - Answer️️ -B A customer purchases a put to protect against a decline in the current value of his stock. The customer exercises the put before expiration, what effect does the premium have for tax purposes? A) The premium is included in the commission on the confirmation. B) The premium will have no tax effec