Examius

🇺🇸 FINRA Series 7 / SIE Exams · subject

FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies Syllabus

The Series 7: Options and Derivative Strategies syllabus for FINRA Series 7 / SIE Exams in full: 3 chapters, 9 topics and 20 sub-topics, every one listed below, plus 50 Series 7: Options and Derivative Strategies flashcards with answers.

3Chapters
9Topics
20Sub-topics
50Flashcards

Series 7: Options and Derivative Strategies syllabus: all 3 chapters

Expand any chapter to see its topics and sub-topics.

  1. Options Pricing and Mechanics

     3 topics
    • Premium Components
      • Intrinsic value and time value
      • Factors affecting premium: volatility, time, and interest rates
    • Options Exercise and Assignment
      • American versus European style exercise
      • Options Clearing Corporation (OCC) and random assignment
    • Position Limits and Listing
      • Standardized contract terms and adjustments for splits/dividends
      • Position and exercise limits

  2. Income and Hedging Strategies

     3 topics
    • Covered Strategies
      • Covered call writing and maximum gain/loss
      • Covered put writing
    • Protective and Hedging Strategies
      • Protective puts and protective calls
      • Married puts
    • Breakeven and Profit/Loss Analysis
      • Breakeven calculations for single options
      • Maximum gain and maximum loss determination

  3. Complex Multi-Leg Strategies

     3 topics
    • Spreads
      • Vertical (bull and bear) call and put spreads
      • Debit versus credit spreads and breakeven
      • Calendar and diagonal spreads
    • Straddles and Combinations
      • Long and short straddles
      • Strangles and combinations
    • Index, Yield-Based, and Currency Options
      • Broad-based index options and cash settlement
      • Interest rate (yield-based) options
      • Foreign currency options

FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies flashcards — 50 questions with answers

  1. What are the two components of an option's total premium?

    Intrinsic value plus time value. Premium = Intrinsic Value + Time Value.

  2. How is intrinsic value of a call option calculated?

    Intrinsic value of a call = Market price of underlying minus the strike price (only if positive; never less than zero). A call has intrinsic value when it is in-the-money (market above strike).

  3. How is intrinsic value of a put option calculated?

    Intrinsic value of a put = Strike price minus market price of underlying (only if positive; never less than zero). A put has intrinsic value when it is in-the-money (market below strike).

  4. When is a call option in-the-money, at-the-money, and out-of-the-money?

    In-the-money: market price above strike. At-the-money: market price equals strike. Out-of-the-money: market price below strike.

  5. When is a put option in-the-money, at-the-money, and out-of-the-money?

    In-the-money: market price below strike. At-the-money: market price equals strike. Out-of-the-money: market price above strike.

  6. How do you calculate the time value of an option given its premium?

    Time value = Premium minus intrinsic value. If an option is at- or out-of-the-money, the entire premium is time value (intrinsic value = 0).

  7. What happens to an option's time value as expiration approaches?

    Time value erodes (time decay/theta), accelerating as expiration nears. At expiration, time value is zero and the option is worth only its intrinsic value.

  8. All else equal, how do rising interest rates and rising volatility affect option premiums?

    Higher volatility increases premiums for both calls and puts (greater chance of moving in-the-money). Higher interest rates tend to increase call premiums and decrease put premiums.

  9. What is the standard contract size and total cost of one listed equity option quoted at a premium of 3?

    Each contract covers 100 shares; a premium of 3 means $3 per share x 100 = $300 total.

  10. What style are listed U.S. equity options (American vs. European), and what does that mean for exercise?

    Listed equity options are American style, meaning the owner may exercise at any time prior to expiration, not just at expiration.

  11. When do standard listed equity options expire?

    They expire at 11:59 PM ET on the third Friday of the expiration month; the last trading day is that Friday. (Cutoff to instruct exercise is generally 5:30 PM ET that day.)

  12. What is the OCC and what role does it play in listed options?

    The Options Clearing Corporation (OCC) issues and guarantees all listed options, acts as the central counterparty, and handles the random assignment of exercise notices.

  13. Describe the assignment process when an option holder exercises.

    The holder notifies their broker, who notifies the OCC. The OCC assigns the exercise to a randomly selected member firm short that option, and the firm assigns a customer (random, FIFO, or another fair method).

  14. What does a customer receive in their account on the OCC's automatic exercise of an in-the-money option at expiration?

    The OCC automatically exercises options in-the-money by $0.01 or more at expiration (exercise-by-exception), unless the holder instructs otherwise.

  15. When a call is exercised, what must the call writer do?

    The call writer (short call) must deliver/sell 100 shares of the underlying at the strike price to the call holder.

  16. When a put is exercised, what must the put writer do?

    The put writer (short put) must buy/take delivery of 100 shares of the underlying at the strike price from the put holder.

  17. What is a position limit in listed options?

    The maximum number of option contracts on the same underlying on the same side of the market that one account or group acting in concert may control, set by the OCC/exchanges to prevent manipulation.

  18. For position limit purposes, which positions are on the 'same side of the market'?

    Bullish positions (long calls + short puts) are one side; bearish positions (long puts + short calls) are the other side. Limits apply to each side separately.

  19. What is an exercise limit in listed options?

    The maximum number of contracts on the same underlying on the same side of the market that may be exercised within five consecutive business days; it equals the position limit.

  20. What is a covered call and why is it written?

    A covered call is selling a call while owning the underlying stock (long 100 shares + short 1 call). It generates premium income and provides limited downside cushion, but caps upside at the strike.

Show the other 30 Series 7: Options and Derivative Strategies flashcards

  1. What is the maximum gain on a covered call?

    Maximum gain = (Strike price - Stock purchase price) + Premium received, per share. Gain is realized if the stock is called away at or above the strike.

  2. What is the breakeven on a covered call position?

    Breakeven = Stock purchase price minus premium received. The premium lowers the effective cost basis.

  3. What is the maximum loss on a covered call?

    Maximum loss = Stock purchase price minus premium received (the stock could fall to zero). Risk is the same as owning the stock, reduced by the premium.

  4. What is a covered put and how does it differ from a naked put?

    A covered put is a short put written against a short stock position. A naked (uncovered) put is written without an offsetting short stock position; the naked put writer's risk is strike minus premium.

  5. What is the maximum loss on an uncovered (naked) call?

    Unlimited, because the stock price can rise without limit and the writer must deliver shares at the strike regardless of how high the market goes.

  6. What is a protective put and what does it accomplish?

    A protective put is buying a put while owning the underlying stock (long stock + long put). It hedges downside risk, acting like insurance; loss is limited while upside remains unlimited.

  7. What is the maximum loss and breakeven on a protective put?

    Max loss = (Stock cost - Strike) + Premium paid, per share. Breakeven = Stock purchase price + Premium paid.

  8. What is a married put?

    A protective put established by buying the stock and the put at the same time. Tax treatment differs slightly, but the risk/reward profile matches a protective put.

  9. What is a protective (long) call used with a short stock position?

    An investor short stock buys a call to hedge against the stock rising. The long call caps the loss on the short position; max loss = (Strike - short sale price) + premium.

  10. How does an investor lock in a gain on appreciated long stock while staying invested?

    Buy a protective put: it sets a floor (sell price = strike) protecting unrealized gains while leaving upside open. The cost is the put premium.

  11. What is the breakeven formula for a long call (buyer)?

    Breakeven = Strike price + Premium paid. The buyer profits above this point.

  12. What is the breakeven formula for a long put (buyer)?

    Breakeven = Strike price - Premium paid. The buyer profits below this point.

  13. For a long call buyer, what are the maximum gain and maximum loss?

    Maximum gain is unlimited (stock can rise without limit); maximum loss is the premium paid.

  14. For a long put buyer, what are the maximum gain and maximum loss?

    Maximum gain = Strike price - Premium (stock can fall to zero); maximum loss is the premium paid.

  15. What is a debit spread and what is the investor's outlook/profit logic?

    A debit spread is buying one option and selling another of the same class where the long option costs more (net debit paid). The investor wants the spread to widen; max gain = difference in strikes - net debit.

  16. What is a credit spread and what is the investor's outlook/profit logic?

    A credit spread is selling one option and buying another of the same class where the short option brings in more (net credit received). The investor wants the spread to narrow/expire; max gain = net credit received.

  17. In any vertical spread, how do you calculate the maximum loss given strikes and net premium?

    Debit spread max loss = net debit paid. Credit spread max loss = (difference in strike prices) - net credit received.

  18. What is a bull call spread (debit call spread) and its construction?

    Bullish strategy: buy a lower-strike call and sell a higher-strike call (net debit). Profits as the underlying rises; gain and loss are both limited.

  19. What is a bear call spread (credit call spread) and its construction?

    Bearish strategy: sell a lower-strike call and buy a higher-strike call (net credit). Max gain = credit if both expire; max loss = strike difference - credit.

  20. What is a bull put spread (credit put spread) and its construction?

    Bullish strategy: sell a higher-strike put and buy a lower-strike put (net credit). Profits if the stock stays up so puts expire; max gain = credit received.

  21. What is a bear put spread (debit put spread) and its construction?

    Bearish strategy: buy a higher-strike put and sell a lower-strike put (net debit). Profits as the underlying falls; gain and loss both limited.

  22. How do you find the breakeven of a call spread (bull or bear)?

    Breakeven = Lower strike + net premium (the 'Call-Up' rule: for calls, add net premium to the lower strike).

  23. How do you find the breakeven of a put spread (bull or bear)?

    Breakeven = Higher strike - net premium (the 'Put-Down' rule: for puts, subtract net premium from the higher strike).

  24. What is a long straddle and the investor's expectation?

    Buying a call and a put with the same strike and expiration on the same underlying. The investor expects high volatility (a large move in either direction). Max loss = total premiums paid.

  25. What are the two breakeven points of a long straddle?

    Upside breakeven = Strike + total premiums; Downside breakeven = Strike - total premiums. The stock must move beyond one of these to profit.

  26. What is a short straddle and its risk profile?

    Selling a call and a put with the same strike and expiration. The investor expects little movement; max gain = total premiums received, but loss is unlimited (on the call side) / very large.

  27. How does a combination (combo) differ from a straddle?

    A combination uses a call and a put on the same underlying but with different strikes and/or different expirations, whereas a straddle uses the same strike and expiration. A long strangle (OTM call + OTM put) is a common combination.

  28. How are most index options settled, and what is the settlement style?

    Broad-based index options settle in cash (no delivery of securities) for the in-the-money amount, and are typically European style (exercised only at expiration).

  29. How do yield-based (interest-rate) options work, and what moves their value?

    Yield-based options are cash-settled options based on Treasury yields. Their value rises with interest rates, so call buyers profit when yields rise and put buyers profit when yields fall.

  30. How do foreign currency options help a U.S. importer hedge, and how do they settle?

    A U.S. importer who must pay in foreign currency buys foreign currency calls to hedge against the foreign currency strengthening (the dollar weakening). Listed FX options are cash-settled.

FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies FAQ

What is in the FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies syllabus?

FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies is split into 3 chapters: Options Pricing and Mechanics, Income and Hedging Strategies and Complex Multi-Leg Strategies. Together they contain 9 topics and 20 sub-topics.

How many chapters are in FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies?

3 chapters, containing 9 topics and 20 sub-topics. The largest chapter is Options Pricing and Mechanics, with 3 topics.

Are there flashcards for FINRA Series 7 / SIE Exams Series 7: Options and Derivative Strategies?

Yes — a 50-card Series 7: Options and Derivative Strategies deck, printed in full in the flashcards section of this page and available in the Examius app with spaced repetition. The free plan covers one exam of your choice, including its flashcards; Examius Pro, a one-time purchase, unlocks every other exam and deck.