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SIE Exam Lesson 13 Options pt 3
SIE Exam Lesson 13 Options pt 3
This is a SIE Exam Lesson 13 Options pt 3 options pt.1which is covering options pt. 1 basic option terminology of call and put options See how you do if you need help listen to the lesson over.
Questions covered include
Below are questions based on the previous lesson. Choose the letter of the correct answer.
To take the quiz online, click here.
Quiz Options Part 3
1. It refers to the number of options that are currently trading in the market.
A. breakeven point
B. open interest
C. utility
D. volatility
2. The following increases open interest EXCEPT:
A. buying to close
B. buying to open
C. selling to open
D. All of the above increase open interest.
3. If you bought an option and you want to sell it, the market price of the option would be ___.
A. the option’s time value at expiration date
B. the option’s intrinsic value at expiration date
C. the option’s intrinsic value when you bought the option
D. the option’s premium
4. Which of the following factors least affect the premium of an option?
A. dividend
B. interest rate
C. option time period
D. volatility
5. If you want to short a stock and interest rates are high, you have to pay higher margin interest rates.
A. True
B. False
6. Utility stocks used to be referred to as ___.
A. county stocks
B. growth stocks
C. value stocks
D. widow-and-orphan stocks
7. Why do utility stocks often have low premium options?
A. Utility stocks often have high income.
B. Utility stocks often have high volatility.
C. Utility stocks often have low income.
D. Utility stocks often have low volatility.
8. It is the measure of a stock’s volatility in relation to the market.
A. beta
B. theta
C. vega
D. veta
9. Which of the following is NOT true about beta?
A. A beta lower than one means that the stock moves more than the market does in general.
B. A beta of one correlates equally with the market.
C. High beta stocks will have higher option premiums.
D. High dividend stocks have a lower beta.
10. If you short a stock and the stock pays a dividend, you are required to pay the dividend when that dividend comes do.
A. True
B. False
SIE Exam Lesson 13 Options pt 3 cont:
11. Compared to call premiums, put premiums are lower on a high dividend stock.
A. True
B. False
12. Which of the following would yield a low option premium?
A. An option with a high dividend on the stock.
B. An option with a high volatility.
C. An option with a long time period before expiration.
D. all of the above
13. If you think the stock would go up, which is the best option strategy to take?
A. Buy a long call option.
B. Buy a long put option.
C. Write a covered call.
D. Write a naked call.
14. Why is it wise to write a covered call when the stock would go down?
A. so that the call option would not be exercised and you can keep the premium
B. so that you can buy the stock at a lower strike price
C. so that you can profit by selling the stock at a higher price
D. all of the above
15. If you long a call, that gives you the right to buy the stock at a specific strike price.
A. True
B. False
16. If you short a put, you are obligated to deliver the stock if it is called away from you.
A. True
B. False
17. A stock is selling at $50. A call option on that stock has a strike price of $70. The premium is $5. What is the breakeven for this option?
A. $45
B. $55
C. $65
D. $75
18. You wrote a covered call for a stock. The stock price is $30. The stock’s premium is $10 and the strike price is $25. If the stock goes down to $20, which is unlikely to happen?
A. The option holder would exercise his option.
B. The option would expire worthless.
C. You would breakeven at the time the stock goes down to $20.
D. You would earn profit by collecting the premium.
19. You wrote a covered call with a premium of $20 for a stock trading at $100. The strike price was $100. If the stock went up to $150, which is true?
A. The option would expire worthless.
B. You could buy back the option at the market before it expires.
C. You would have the obligation to buy the stock if the option is exercised.
D. You could exercise your right to sell the stock at the strike price.
20. You wrote a put with a premium of $5 on a stock selling at $40. The strike price was $40. If the stock went down to $30, what would happen?
A. The option would expire worthless.
B. You gain no profit and lose $10 per share if the option was exercised.
C. You gain no profit and lose $5 per share if the option was exercised.
D. Your maximum profit would be $5 if the option was exercised.
ANSWERS
- open interest
- buying to open
- the option’s premium
- interest rate
- True
- widow-and-orphan stocks
- Utility stocks often have low volatility.
- beta
- A beta lower than one means that the stock moves more than the market does in general.
A beta lower than one means a stock moves less than the market in general.
- True
- False
In put options, if you short a stock and the stock pays a dividend, you are required to pay the dividend when that dividend comes do. Thus, put premiums are higher on a high dividend stock because of the carrying costs (of paying dividend) on shorting the stock compared to call premiums which do not have this carrying cost.
- An option with a high dividend on the stock.
The higher the dividend stock, the less volatility the stock has underlined, and therefore, less premium it has.
- Buy a long call option.
When the stock goes up and you bought a long call option, you can buy that stock at the amount of the strike price (indicated at the call option) which has become lower than the current price of the stock. You save money by buying a stock at the lower strike price than its current price.
- so that the call option would not be exercised and you can keep the premium
- True
- False
If you short a put (sell a put option), you are obligated to buy the stock from the option holder if that option is exercised. Delivering a stock if it is called away from you is an obligation of a person who short a call.
- $75
For a call option:
Breakeven = Strike Price + Premium
75 = 70 + 5
Thus, the breakeven for this option is $75.
- The option holder would exercise his option.
The option holder would UNLIKELY exercise his option because the stock would be out of the money and the option would be worthless.
- You could buy back the option at the market before it expires.
If you wrote a covered call wherein you have the obligation to sell the stock to the option holder at the $100 strike price and the stock goes up to $150, you could buy back the option at the market before it expires so that your stock won’t be called away from you. The other choices are not applicable with the situation.
- You gain no profit and lose $5 per share if the option was exercised.
By writing the put option, you are taking upon yourself the responsibility to buy the stock at the strike price if the stock drops below the exercise price and the option is exercised. Therefore in this case, you would be forced to buy the stock at $40 per share ($30 – $40 = -$10). You received a $5 premium and therefore you would have a loss of $5 per share at the time the option is exercised (-$10 + $5 = -$5).
We hope you did well on this SIE Exam Lesson 13 Options pt 2
Total Course 37 hours 10 Min
37 hours 10 Min of audio instruction to help you prepare for the Securities Industry Essentials Exam
59 Audio Lessons for Securities Industry Essentials Exam
13 Bonus Lessons about the finance industry
Securities Industry Essentials Exam Podcast Audio Lessons for the SIE Exam
The full course details:
37 hours 10 Min of audio instruction to help you prepare for the Securities Industry Essentials Exam
59 Audio Lessons for Securities Industry Essentials Exam
13 Bonus Lessons about the finance industry
Securities Industry Essentials Exam Podcast Audio Lessons for the SIE Exam
New Series 7 Exam and SIE Exam details.
All candidates now must now pass both the SIE exam (securities industry essentials exam) as well as the New Top-Off Series 7 Exam. A Series 7 candidate must also have an industry sponsor in order to take the examination to take the SIE Exam the candidate simply needs to be 18 years old and no broker affiliation is needed..
https://www.finra.org/industry/essentials-exam
- “Securities Industry Essentials (SIE) Exam
Available Beginning October 1, 2018
The Securities Industry Essentials (SIE or Essentials) Exam, available beginning October 1, 2018, is a new FINRA exam for prospective securities industry professionals. This introductory-level exam assesses a candidate’s knowledge of basic securities industry information including concepts fundamental to working in the industry, such as types of products and their risks; the structure of the securities industry markets, regulatory agencies and their functions; and prohibited practices.
Key Features of the Essentials Exam
________________________________________
• The Essentials exam is open to anyone aged 18 or older, including students and prospective candidates interested in demonstrating basic industry knowledge to potential employers.
• Association with a firm is not required, and individuals are permitted to take the exam before or after associating with a firm.
• Essentials exam results are valid for four years.
The Essentials Exam at a Glance
________________________________________
Number of Items 75
Format Multiple Choice
Duration 105 minutes
Passing Score 70%
Cost $60”
New Series 7 Exam
The New Series 7 Content Outline provides a comprehensive guide to the range of topics covered on the exam, as well as the depth of knowledge required. The outline is comprised of the four main job functions of a general securities representative. The table below lists the allocation of exam questions for each main job function.
Major Job Functions Percentage of Test Questions Number of Test Questions
(F1) Seeks Business for the Broker-Dealer from Customers and Potential Customers 7% 9
(F2) Opens Accounts after Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives 9% 11
(F3) Provides Customers with Information about Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records 73% 91
(F4) Obtains and Verifies Customers’ Purchase and Sales Instructions and Agreements; Processes, Completes, and Confirms Transactions 11% 14
TOTAL 100% 125”
The five job functions of the new Series 7 General Securities Representative Exam will be:
“Seeks business for the broker-dealer through customers and potential customers”
“Evaluates customers’ financial status, financial needs and risk tolerance, and helps them identify their investment objectives”
“Opens accounts, transfers assets and maintains appropriate account records”
“Provides customers with information on investments and makes suitable recommendations”
“Obtains and verifies customer’s purchase and sales instructions, enters orders and follows up”
These five functions of the new series 7 exam are the same or substantially similar to ones on the current Series 7 exam. A notable change from the existing Series 7 exam is the addition of evaluating customer “risk tolerance.”
https://www.finra.org/industry/series7
Here is a link to the table of Contents
Here is what my customers say about my audio lessons
Testimonials
—————————
New Series 7 Exam and SIE Exam details.
FINRA has announced major changes to the Series 7 Exam effective October 1, 2018. With the introduction of the Securities Industries Essentials Exam (SIE Exam) the new series 7 has been pared down to 125 questions from its original 250 questions.
https://www.finra.org/industry/series7
However there is now a prerequisite before taking the new Series 7 Exam all candidates now must have passed the SIE exam (securities industry essentials exam). In addition thing a series 7 candidate must also have an industry sponsor in order to take the examination.
https://www.finra.org/industry/essentials-exam
“Securities Industry Essentials (SIE) Exam
Available Beginning October 1, 2018
The Securities Industry Essentials (SIE or Essentials) Exam, available beginning October 1, 2018, is a new FINRA exam for prospective securities industry professionals. This introductory-level exam assesses a candidate’s knowledge of basic securities industry information including concepts fundamental to working in the industry, such as types of products and their risks; the structure of the securities industry markets, regulatory agencies and their functions; and prohibited practices.
Key Features of the Essentials Exam
________________________________________
• The Essentials exam is open to anyone aged 18 or older, including students and prospective candidates interested in demonstrating basic industry knowledge to potential employers.
• Association with a firm is not required, and individuals are permitted to take the exam before or after associating with a firm.
• Essentials exam results are valid for four years.
The Essentials Exam at a Glance
________________________________________
Number of Items 75
Format Multiple Choice
Duration 105 minutes
Passing Score 70%
Cost $60”
Outline of SIE Exam:
https://www.finra.org/sites/default/files/SIE%20Outline-01.12.18.pdf
https://www.finra.org/industry/series7
https://www.finra.org/sites/default/files/Series_7_Content_Outline.pdf