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FINRA Series 7
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Question 1 of 10
1. Question
The only time when the option-holder may exercise the option is at the expiration date is known as:
Correct
European-style exercising means that the only time when the option-holder may exercise the option is at the expiration date. Option-holders are prohibited from exercising these options prior to the expiration date.
Incorrect
European-style exercising means that the only time when the option-holder may exercise the option is at the expiration date. Option-holders are prohibited from exercising these options prior to the expiration date.
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Question 2 of 10
2. Question
The number of option contracts that have been traded in a certain time period is known as:
Correct
Volume is the number of option contracts that have been traded in a certain time period. It helps to show how meaningful price differences are
Incorrect
Volume is the number of option contracts that have been traded in a certain time period. It helps to show how meaningful price differences are
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Question 3 of 10
3. Question
Which of the following relates to the restrictions placed upon the number of options contracts an investor can hold with respect to a particular security?
Correct
Position limits are restrictions placed upon the number of options contracts an investor can hold with respect to a particular security. It is possible for investors to hold a long position on one option contract, and then, with respect to the same asset, hold a short position on a different option contract.
Incorrect
Position limits are restrictions placed upon the number of options contracts an investor can hold with respect to a particular security. It is possible for investors to hold a long position on one option contract, and then, with respect to the same asset, hold a short position on a different option contract.
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Question 4 of 10
4. Question
Which of the following restrictions are placed upon the number of option contracts an investor can exercise for a given security in a given time period?
Correct
Exercise limits are restrictions placed upon the number of option contracts an investor can exercise for a given security in a given time period.
Incorrect
Exercise limits are restrictions placed upon the number of option contracts an investor can exercise for a given security in a given time period.
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Question 5 of 10
5. Question
Let’s suppose that a call option permitted the holder to purchase 100 shares of company X at $30 per share, and company X then issued 5% stock dividends. This call option would now permit the holder to purchase 105 shares according to the contract, a 5% increase from 100 shares. Yet, the price per share would decrease to:
Correct
For instance, suppose a call option permitted the holder to purchase 100 shares of company X at $30 per share, and company X then issued 5% stock dividends. This call option would now permit the holder to purchase 105 shares according to the contract, a 5% increase from 100 shares. Yet, the price per share would decrease to $28.57 ($30/share x 100 shares / 105 shares).
Incorrect
For instance, suppose a call option permitted the holder to purchase 100 shares of company X at $30 per share, and company X then issued 5% stock dividends. This call option would now permit the holder to purchase 105 shares according to the contract, a 5% increase from 100 shares. Yet, the price per share would decrease to $28.57 ($30/share x 100 shares / 105 shares).
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Question 6 of 10
6. Question
Which of the following involves multiplying the quantity of stocks and dividing their value (whether twofold, threefold, or whatever), this could potentially wreak havoc on options contracts?
Correct
Since stock splits involve multiplying the quantity of stocks and dividing their value (whether twofold, threefold, or whatever), this could potentially wreak havoc on options contracts. Imagine an investor who had an option to buy various stocks which suddenly were halved, even though the value of the company did not meaningfully change; he would experience unnecessary and great losses.
Incorrect
Since stock splits involve multiplying the quantity of stocks and dividing their value (whether twofold, threefold, or whatever), this could potentially wreak havoc on options contracts. Imagine an investor who had an option to buy various stocks which suddenly were halved, even though the value of the company did not meaningfully change; he would experience unnecessary and great losses.
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Question 7 of 10
7. Question
Which of the following refers to the minimum amount of cash required to be deposited in an options trading broker account for the trader to begin trading options?
Correct
Options margin refers to the minimum amount of cash required to be deposited in an options trading broker account for the trader to begin trading options.
Incorrect
Options margin refers to the minimum amount of cash required to be deposited in an options trading broker account for the trader to begin trading options.
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Question 8 of 10
8. Question
Suppose an investor has a number of stocks which have done well over the previous few years, increasing by 30% or so in value. If he is concerned about the price peaking and dropping, he can purchase a put option to ensure that he will not experience losses in selling those stocks should the price drop. This is known as:
Correct
Suppose an investor has a number of stocks which have done well over the previous few years, increasing by 30% or so in value. If he is concerned about the price peaking and dropping, he can purchase a put option to ensure that he will not experience losses in selling those stocks should the price drop. This is called hedging for equity
Incorrect
Suppose an investor has a number of stocks which have done well over the previous few years, increasing by 30% or so in value. If he is concerned about the price peaking and dropping, he can purchase a put option to ensure that he will not experience losses in selling those stocks should the price drop. This is called hedging for equity
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Question 9 of 10
9. Question
Which of the following statements is (are) true for bearish investor?
I. Thinks a stock will go up
II. The investor can write a call on the stock
III. Thinks stock will decline in price
IV. To protect against the risk of lossCorrect
A bearish investor thinks stock will decline in price and might therefore be a short seller, borrowing shares he doesn’t own and hoping to replace them with stocks bought at a lower price down the road. To protect against the risk of loss, a short seller can use options. For partial protection, the short seller can sell a put against the same stock. For full protection, the short seller can buy a call on the same stock.
Incorrect
A bearish investor thinks stock will decline in price and might therefore be a short seller, borrowing shares he doesn’t own and hoping to replace them with stocks bought at a lower price down the road. To protect against the risk of loss, a short seller can use options. For partial protection, the short seller can sell a put against the same stock. For full protection, the short seller can buy a call on the same stock.
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Question 10 of 10
10. Question
When the investor can write a call on the stock, giving someone else the right to purchase it for lower than the market price is referred as:
Correct
For short-term protection, the investor can write a call on the stock, giving someone else the right to purchase it for lower than the market price. This limits their upside potential, and is only advisable for stock with low volatility.
Incorrect
For short-term protection, the investor can write a call on the stock, giving someone else the right to purchase it for lower than the market price. This limits their upside potential, and is only advisable for stock with low volatility.