Series 7 Exam Practice Test 9: Options

1. When the OCC receives an exercise notice, it must determine which firm is responsible for exercising the option contract:

2. Which TWO of the following are TRUE regarding an investor who sold short 100 shares of DDD common stock at 35 and purchased 1 DDD Oct 40 call at 3?

I. The maximum potential gain is $3,200

II. The maximum potential gain is $3,800

III. The maximum potential loss is $200

IV. The maximum potential loss is $800

3. An investor is long 240,000 LMN calls. Which of the following additional positions may the investor have without violating position limits (position limit 250,000)?

4. An investor purchased 100 shares of DEF common stock at $32 per share. Three months later with DEF trading at $33 per share, the investor wrote 1 DEF 35 call at 4. What is the investor's break-even point?

5. An investor is long 1 ABC Oct 50 call at 9 and short 1 ABC Oct 60 call at 3. Which TWO of the following are TRUE?

I. The break-even point is 56

II. The break-even point is 62

III. The maximum potential gain is $400

IV. The maximum potential gain is unlimited

6. An investor buys 1 XYZ May 60 put for 6 and writes 1 XYZ May 50 put for 2. What is the investor's maximum potential gain?

7. An investor writes a GHI May 40 call for 9. GHI increases to $45 just prior to expiration and the call is exercised. After the investor buys the stock in the market to meet their obligation, what is the gain or loss?

8. Sharlet R. bought 100 shares of GHI at $40 and bought 1 GHI May 40 put for 6. What is the maximum potential gain?

9. An investor sells 1 XYZ May 30 put for 7. What is the break-even point?

10. An investor sold 1 XYZ Oct 35 put at 7. Two weeks prior to expiration with XYZ trading at 33, the investor bought 1 XYZ Oct 35 put at 3. The second transaction would be called a(n)

11. An investor purchased a standard option which expired out of the money. How would this transaction be categorized for tax purposes?

12. The Option Clearing Corporation sets all of the following with regard to an option contract EXCEPT the

13. If an investor believes that the S&P 500 will become bearish, which TWO of the following would be appropriate strategies?

I. Buy SPX calls

II. Buy SPX puts

III. Sell SPX calls

IV. Sell SPX puts

14. Which of the following is the riskiest option strategy?

15. Ayla sells 1 HIJ Nov 40 put at 6. What is Ayla's maximum potential loss on this position?