SERIES 9: MASTERY AND PRACTICE EXAM. || WITH
100% CORRECT ANSWERS.
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
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. correct answers 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 correct answers A
Regulation SHO has a circuit breaker test that when triggered prohibits short sale orders
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. correct answers 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.
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 correct answers 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.
LO 6.b correct answers 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 correct answers B
The phrase public appearance as defined by FINRA, means participation in any of the following
except
A)
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 correct answers 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)
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 correct answers 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
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 correct answers 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 bearish, being more profitable as
the underlying stock drops in price. On the reverse side, a debit call spread is bullish.
LO 11.e correct answers 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 effect as the customer did not buy a call.
C)
The premium is subtracted from the strike price, lowering the sale price.
D)
The premium is added to the strike price, increasing the cost.
Explanation
