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Question 1 of 10
1. Question
Which of the following statement is/are true regarding exercise price?
I. The exercise price is the price at which an underlying security can be purchased or sold when trading a call or put option
II. The exercise price is the same as the market price of an option
III. “Exercise price” is a term used in derivatives trading
IV. The difference between the exercise price and underlying security’s price determines if an option is “in the money” or “out of the money.”Correct
Rule no 2360. Options
The exercise price is the price at which an underlying security can be purchased or sold when trading a call or put option, respectively. The exercise price is the same as the strike price of an option, which is known when an investor takes a trade. An option gets its value from the difference between the fixed exercise price and the market price of the underlying securityIncorrect
Rule no 2360. Options
The exercise price is the price at which an underlying security can be purchased or sold when trading a call or put option, respectively. The exercise price is the same as the strike price of an option, which is known when an investor takes a trade. An option gets its value from the difference between the fixed exercise price and the market price of the underlying security -
Question 2 of 10
2. Question
Which of the following statement is/are true about long position?
I. A long position—also known as simply long—is the buying of a stock, commodity, or currency with the expectation that it will rise in value.
II. Long position and long are often used In the context of buying an options contract
III. An investor who hopes to benefit from an upward price movement in an asset will “go long” on a call option
IV.Being long on a stock or bond investment is not a measurement of timeCorrect
Rule no 2360. Options
Long Position — The term “long position” means the number of outstanding option contracts of a given series of options held by a person (purchaser). ong position and long are often used In the context of buying an options contract. The trader can hold either a long call or a long put option, depending on the outlook for the underlying asset of the option contract.An investor who hopes to benefit from an upward price movement in an asset will “go long” on a call option. The call gives the holder the option to buy the underlying asset at a certain price.
Conversely, an investor who expects an asset’s price to fall—are bearish—will be long on a put option—and maintain the right to sell the asset at a certain price.Incorrect
Rule no 2360. Options
Long Position — The term “long position” means the number of outstanding option contracts of a given series of options held by a person (purchaser). ong position and long are often used In the context of buying an options contract. The trader can hold either a long call or a long put option, depending on the outlook for the underlying asset of the option contract.An investor who hopes to benefit from an upward price movement in an asset will “go long” on a call option. The call gives the holder the option to buy the underlying asset at a certain price.
Conversely, an investor who expects an asset’s price to fall—are bearish—will be long on a put option—and maintain the right to sell the asset at a certain price. -
Question 3 of 10
3. Question
Which of the following statement is/are true regarding option trading?
I.A stock option contract typically represents 100 shares of the underlying stock
II. An option is a contract giving the buyer the right, but not the obligation, to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date
III. People use options for income, to speculate, and to hedge risk
IV. Options are known as derivatives because they derive their value from an underlying liabilityCorrect
Rule no 2360. Options
Options Trading — The term “options trading” means trading (A) in any option issued by The Options Clearing Corporation, and (B) in any conventional option. Options are contracts that give the bearer the right, but not the obligation, to either buy or sell an amount of some underlying asset at a pre-determined price at or before the contract expires. Options can be purchased like most other asset classes with brokerage investment accounts.Incorrect
Rule no 2360. Options
Options Trading — The term “options trading” means trading (A) in any option issued by The Options Clearing Corporation, and (B) in any conventional option. Options are contracts that give the bearer the right, but not the obligation, to either buy or sell an amount of some underlying asset at a pre-determined price at or before the contract expires. Options can be purchased like most other asset classes with brokerage investment accounts. -
Question 4 of 10
4. Question
Which of the following statement is/are true regarding short position?
I. A short is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price
II. potential to earn a profit and infinite potential for losses
III. There are three types of short positions
IV. In the futures or foreign exchange markets, short positions can be created at any time.Correct
Rule no 2360. Options
A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. There are two types of short positions: naked and covered. A naked short is when a trader sells a security without having possession of it. However, that practice is illegal in the U.S. for equities. A covered short is when a trader borrows the shares from a stock loan department; in return, the trader pays a borrow-rate during the time the short position is in placeIncorrect
Rule no 2360. Options
A short, or a short position, is created when a trader sells a security first with the intention of repurchasing it or covering it later at a lower price. There are two types of short positions: naked and covered. A naked short is when a trader sells a security without having possession of it. However, that practice is illegal in the U.S. for equities. A covered short is when a trader borrows the shares from a stock loan department; in return, the trader pays a borrow-rate during the time the short position is in place -
Question 5 of 10
5. Question
What are the options for reporting of options positions?
I. Conventional options
II. Standardized options
III. Specific options
IV. Conventional and standardizedCorrect
Rule no 2360. Options
A)(i)a. Conventional Options
Each member shall file or cause to be filed with FINRA a report with respect to each account in which the member has an interest, each account of a partner, officer, director or employee of such member, and each customer, non-member broker, or non-member dealer account, which, acting alone or in concert, has established an aggregate position of 200 or more option contracts (whether long or short) of the put class and the call class on the same side of the market covering the same underlying security or index, combining for purposes of this subparagraph long positions in put options with short positions in call options and short positions in put options with long positions in call options, provided, however, that such reporting with respect to positions in conventional index options shall apply only to an option that is based on an index that underlies, or is substantially similar to an index that underlies, a standardized index option.
b. Standardized Options
Each member that conducts a business in standardized options but is not a member of the options exchange upon which the standardized options are listed and traded shall file or cause to be filed with FINRA a report with respect to each account in which the member has an interest, each account of a partner, officer, director or employee of such member, and each customer, non-member broker, or non-member dealer account, which, acting alone or in concert, has established an aggregate position of 200 or more option contracts (whether long or short) of the put class and the call class on the same side of the market covering the same underlying security or index, combining for purposes of this subparagraph long positions in put options with short positions in call options and short positions in put options with long positions in call options.Incorrect
Rule no 2360. Options
A)(i)a. Conventional Options
Each member shall file or cause to be filed with FINRA a report with respect to each account in which the member has an interest, each account of a partner, officer, director or employee of such member, and each customer, non-member broker, or non-member dealer account, which, acting alone or in concert, has established an aggregate position of 200 or more option contracts (whether long or short) of the put class and the call class on the same side of the market covering the same underlying security or index, combining for purposes of this subparagraph long positions in put options with short positions in call options and short positions in put options with long positions in call options, provided, however, that such reporting with respect to positions in conventional index options shall apply only to an option that is based on an index that underlies, or is substantially similar to an index that underlies, a standardized index option.
b. Standardized Options
Each member that conducts a business in standardized options but is not a member of the options exchange upon which the standardized options are listed and traded shall file or cause to be filed with FINRA a report with respect to each account in which the member has an interest, each account of a partner, officer, director or employee of such member, and each customer, non-member broker, or non-member dealer account, which, acting alone or in concert, has established an aggregate position of 200 or more option contracts (whether long or short) of the put class and the call class on the same side of the market covering the same underlying security or index, combining for purposes of this subparagraph long positions in put options with short positions in call options and short positions in put options with long positions in call options. -
Question 6 of 10
6. Question
What does a central file should include?
I. identification of complaint
II. date complaint was received
III. profession of the person filing the complaint
IV. a general description of the matter complained ofCorrect
Rule no 2360. Options
At a minimum, the central file shall include:
(i) identification of complainant;
(ii) date complaint was received;
(iii) identification of registered representative servicing the account;
(iv) a general description of the matter complained of; and
(v) a record of what action, if any, has been taken by the member with respect to the complaint.Incorrect
Rule no 2360. Options
At a minimum, the central file shall include:
(i) identification of complainant;
(ii) date complaint was received;
(iii) identification of registered representative servicing the account;
(iv) a general description of the matter complained of; and
(v) a record of what action, if any, has been taken by the member with respect to the complaint. -
Question 7 of 10
7. Question
What are the responsibilities of the headquarters in terms of reviewing the accounts?
I. the compatibility of options transactions with investment objectives and with the types of transactions for which the account was approved
II. commission activity in the account
III. compliance with the provisions of Regulation T of the Federal Reserve Board
IV. compliance with the provisions of Bank Secrecy ActCorrect
Rule no 2360. Options
Each member shall maintain at the principal supervisory office having jurisdiction over the office servicing customer accounts, or have readily accessible and promptly retrievable, information to permit review of each customer’s options account on a timely basis to determine:
(i) the compatibility of options transactions with investment objectives and with the types of transactions for which the account was approved;
(ii) the size and frequency of options transactions;
(iii) commission activity in the account;
(iv) profit or loss in the account;
(v) undue concentration in any options class or classes, and
(vi) compliance with the provisions of Regulation T of the Federal Reserve Board.Incorrect
Rule no 2360. Options
Each member shall maintain at the principal supervisory office having jurisdiction over the office servicing customer accounts, or have readily accessible and promptly retrievable, information to permit review of each customer’s options account on a timely basis to determine:
(i) the compatibility of options transactions with investment objectives and with the types of transactions for which the account was approved;
(ii) the size and frequency of options transactions;
(iii) commission activity in the account;
(iv) profit or loss in the account;
(v) undue concentration in any options class or classes, and
(vi) compliance with the provisions of Regulation T of the Federal Reserve Board. -
Question 8 of 10
8. Question
Which of the following statements is/are true regarding portfolio margin?
I. The objective of portfolio margining is to offset the risks to the lender through consolidating
II. It typically results in drastically lower margin requirements for hedged positions as compared to traditional policy rules
III. Portfolio margin is utilized for derivatives accounts containing swaps, options and futures contracts
IV. Portfolio margin accounting requires a margin position that is equal to the remaining assets that existsCorrect
Rule no 2360. Options
Portfolio margin refers to the modern composite-margin policy that must be maintained in a derivatives account containing swaps (including credit default swaps), options and futures contracts. The objective of portfolio margining is to offset the risks to the lender through consolidating, or netting, positions to account for a portfolio’s overall risk. It typically results in drastically lower margin requirements for hedged positions as compared to traditional policy rules. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other.Incorrect
Rule no 2360. Options
Portfolio margin refers to the modern composite-margin policy that must be maintained in a derivatives account containing swaps (including credit default swaps), options and futures contracts. The objective of portfolio margining is to offset the risks to the lender through consolidating, or netting, positions to account for a portfolio’s overall risk. It typically results in drastically lower margin requirements for hedged positions as compared to traditional policy rules. Portfolio margin accounting requires a margin position that is equal to the remaining liability that exists after all offsetting positions have been netted against each other. -
Question 9 of 10
9. Question
Which of the following statements is/are true about Direct Participation Program?
I. A direct participation program (DPP) is a pooled entity that offers investors access to a business venture’s cash flow and tax benefits
II. Most DPPs are managed passively and have a lifespan of ten to 15 years.
III. A DPP requires a buy-in from the members in order to access the program’s benefits
IV. Most DPPs are real-estate investment trusts (REITs) and limited partnerships.Correct
Rule no 2130. Direct Participation Program
Direct participation program (program) — a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. A program may be composed of one or more legal entities or programs but when used herein and in any rules or regulations adopted pursuant hereto the term shall mean each of the separate entities or programs making up the overall program and/or the overall program itself. Excluded from this definition are real estate investment trusts, tax qualified pension and profit sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code and individual retirement plans under Section 408 of that Code, tax sheltered annuities pursuant to the provisions of Section 403(b) of the Internal Revenue Code, and any company including separate accounts, registered pursuant to the Investment Company ActIncorrect
Rule no 2130. Direct Participation Program
Direct participation program (program) — a program which provides for flow-through tax consequences regardless of the structure of the legal entity or vehicle for distribution including, but not limited to, oil and gas programs, real estate programs, agricultural programs, cattle programs, condominium securities, Subchapter S corporate offerings and all other programs of a similar nature, regardless of the industry represented by the program, or any combination thereof. A program may be composed of one or more legal entities or programs but when used herein and in any rules or regulations adopted pursuant hereto the term shall mean each of the separate entities or programs making up the overall program and/or the overall program itself. Excluded from this definition are real estate investment trusts, tax qualified pension and profit sharing plans pursuant to Sections 401 and 403(a) of the Internal Revenue Code and individual retirement plans under Section 408 of that Code, tax sheltered annuities pursuant to the provisions of Section 403(b) of the Internal Revenue Code, and any company including separate accounts, registered pursuant to the Investment Company Act -
Question 10 of 10
10. Question
What is fair market net worth?
Correct
Rule no 2130. Direct Participation Program
Fair market net worth — total assets computed at fair market value less total liabilities. Gross fair market value is the fair market value of an asset before allowing for any liabilities such as loans, taxes or liensIncorrect
Rule no 2130. Direct Participation Program
Fair market net worth — total assets computed at fair market value less total liabilities. Gross fair market value is the fair market value of an asset before allowing for any liabilities such as loans, taxes or liens