Term
|
Definition
|
|
Term
| When does exercise on a VIX option occur? |
|
Definition
| Automatic exercise ocurrs if exercise settlement value is equal to or exceeds strike price on the call. |
|
|
Term
| What does an investor who is in a long straddle expect from the market? |
|
Definition
|
|
Term
| What is gross settlement? |
|
Definition
| Just what happens between the strike price and index value at the close. Ignore premiums. |
|
|
Term
| The "spread" refers to the difference in what? |
|
Definition
| The difference between the PREMIUMS, not the strike prices. |
|
|
Term
|
Definition
| For government securities and options, the settlement date is usually the next business day, that is, T+1. |
|
|
Term
| When does the maximum loss occur in a long straddle? |
|
Definition
| Note: Because the investor in a long straddle expects volatility, the maximum loss would occur if the stock price was exactly the same as the strike price (at the money) because neither contract would have any intrinsic value |
|
|
Term
|
Definition
| The amount of PREMIUM which exceeds the value. |
|
|
Term
| When is a short put in the money? |
|
Definition
| When the market price of the stock is LESS THAN the exercise price. |
|
|
Term
| What happens if a customer does not respond to the request for verification of background information? |
|
Definition
| The firm can consider that it is verified. |
|
|
Term
| What kind of options can you buy in a margin account? |
|
Definition
You can buy calls and puts; however, 100% of premiums are required. So you can buy them but just not on margin (unless it is a LEAP with more than 9 months).
You can write covered calls and puts in a margin account but you can only do spread positions and you can only write uncovered calls and puts with a margin deposit |
|
|
Term
| When an investor does a debit spread, what is the goal? |
|
Definition
| To close out the spreads to make a profit, because if they expire he loses all the money. |
|
|
Term
| What is refunding of a bond? |
|
Definition
| Basically a refinancing of a bond. They retire it by refunding it because there has been a sharp decline in interest rates and they can do new issues at lower rates. |
|
|
Term
| Short straddles are profitable when? |
|
Definition
| When they are inside the break events. |
|
|
Term
| When must option agreements be received by the member firm. |
|
Definition
| Must be received within 15 calendar days (not business days) |
|
|
Term
| A converrtable preferred is selling for $120 per share with a conversion price of $20. What is the parity price of the stock? |
|
Definition
|
|
Term
| A convertible bond is quoted @80 and has a conversion price of $50. What is the parity price of the stock? |
|
Definition
Steop 1. Par Value / conversion price = Conversion ratio = 20 shares
Step 2. Market price / number of shares = 40 per share
For example, one bond that can be converted to 20 shares of common stock has a 20-to-1 conversion ratio. The conversion ratio can also be found by taking the bond's par value, which is generally $1,000, and dividing it by the conversion price. |
|
|
Term
| How many days after being approved for options must you send the financial background information to the client for verification? |
|
Definition
|
|
Term
| What is the conversion ratio forumula for bonds? |
|
Definition
| Par Value / conversion price. For example, one bond that can be converted to 20 shares of common stock has a 20-to-1 conversion ratio. The conversion ratio can also be found by taking the bond's par value, which is generally $1,000, and dividing it by the share price. A stock trading for $40 has a conversion ratio equal to $1,000 divided by $40, or 25. |
|
|
Term
| True or false. An investor has limited loss potential if he sells put options against stock that he has sold short. |
|
Definition
| The investor has some protection because he has received premiums but still has unlimited loss potential on the stock position. |
|
|
Term
| What is "systematic risk" |
|
Definition
| Systematic risk refers to the risk inherent to the entire market or market segment. Systematic risk, also known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry. |
|
|
Term
| A vertical bull spread is long the option with the (lower or higher option)? |
|
Definition
| Lower. Vertical Bull buys the option with the lower strike price. |
|
|
Term
| Accrued interest is added or deducted from what the seller receives? What about what the buyer pays? |
|
Definition
| Added to the amount the seller receives and added to the amount the buyer pays. |
|
|
Term
| What is the formula for current yield on a bond? |
|
Definition
| AI/M - as in Ready AIM Fire. Annual Interest Rate (value) / Market Price |
|
|
Term
|
Definition
| Beta measures volatility against a benchmark like S&P. IMPORTANT it represents Systematic Risk |
|
|
Term
| What is the Forex Market? |
|
Definition
| Decentralized currency market. Facilitates international trade and is a market for US and Foreign currencies. Helps increase liquidity. The Spot price of each currency is used to determine the value. Opens Sunday 5 p.m. EST closes Friday 5 p.m. EST. |
|
|
Term
| If you bought a put, how is it taxed if exercised? |
|
Definition
Exercise price minus premium paid = sales proceeds of the stock sold.
Exercise price - sales proceeds = sales proceeds |
|
|
Term
| When a spread is done net credit, what is the goal of the investor? |
|
Definition
| The investor wants them to expire to keep the premium - the net credit. |
|
|
Term
| What to indexed options settle in? |
|
Definition
|
|
Term
| Accrued interest on corporate and muni bonds is calculated on what calendar? |
|
Definition
|
|
Term
| If an option agreement is not returned in 15 days, what kind of transactions can occur? |
|
Definition
| Only liquidating transactions. Remember, the answer is not to hault transactions (trick) -- only liquidating transactions to close out. |
|
|
Term
| What is the general dividend payout ratio of a public utility company? |
|
Definition
|
|
Term
| If a US investor must make payment in a foreign currency, what would the investor buy? |
|
Definition
| Calls on the foreign currency in case the value of the foreign currency goes up. |
|
|
Term
|
Definition
| Retail Automatic Execution Systems that executes market and limit orders of up to 50 contracts for public customers in OEX and many equity options. |
|
|
Term
| When is pre-approval of sales literature and worksheets not required? |
|
Definition
| Usually an ROP must approve, but if being sent to institutional clients, no pre-approval is required. |
|
|
Term
|
Definition
| A Reg A+ offering covers exempt securities - less thatn $75 million in any 12 month period. It is a short registration statement and issuer sends a ciruclar to the public instead of a normal prospectus. |
|
|
Term
|
Definition
| It is a basket of foreign currencies that measure the value of the US Dollar against them. |
|
|
Term
| What is a broad-based index option. |
|
Definition
| Covers a broad range of industries such as the S&P 500. |
|
|
Term
| Accured interest is pad up to and including settlement date. True of False? |
|
Definition
| False. Upt to but NOT including that settlement date. Trade date plus two business days but not the settlement day (which would be the second day after trade). |
|
|
Term
| What happens (tax-wise) if someone buys a Muni bond in the secondar market. |
|
Definition
| The customer who bought it will have to pay a tax every year on the prorated amount based on the discount. |
|
|
Term
| Explain how to adjust for stock dividend in an option. |
|
Definition
| Value of stock before dividend / # new shares generated = new strike price. |
|
|
Term
| Whenever you buy a put, what are you doing? |
|
Definition
| Hedging long stock positions. |
|
|
Term
|
Definition
| Cash payments must be paid by BD not offerer, for discounts, loans, employee benefits, etc. Non cash payments not associated with sales target are allowed and not required in prospectus. |
|
|
Term
| When are payments to publications that influence stock prices ok? |
|
Definition
| Advertising; if disclosure clearly given; research reports |
|
|
Term
| What are some exceptions to FINRA first use requirements. |
|
Definition
| Advertising concerning government securities do not require filing, nor do general descriptions about securities aimed at educating a reader about broad issues. |
|
|
Term
|
Definition
| Permitted if all material differences are disclosed. |
|
|
Term
| When can you use testimonials? |
|
Definition
| If about a technical aspect of investing, they must be qualified; if about performance, the ad must say that the person's experience may not be yours; if person is being paid for testimonial (over $100) you must disclose. |
|
|
Term
| What are "signatures of convenience" and are they ever allowed? |
|
Definition
| No. Can't have clients sign blank forms or sign for them. |
|
|
Term
| How long does the FINRA communication requirement last after a rep has joined a new firm? |
|
Definition
|
|
Term
| What is pumping and dumping? |
|
Definition
| Spreading false news or fictious trading activity to inflate stock price. |
|
|
Term
| What is the statute of limitations on claims? |
|
Definition
|
|
Term
| What do you have to demonstrate to conduct a transaction that may at first seem prohibited? i.e. front running. |
|
Definition
| 1. demonstrate unrleated to a block order; 2. transactions undertaken to fulfill a block order; 3. executed on a national securities exchange and comply with marketplace rules of that exchange. |
|
|
Term
| How many calendar days do you have to exchange discovery documents with counter party? |
|
Definition
| You have 20 calendar days. |
|
|
Term
| What is the prior use filing rule? |
|
Definition
| File with FINRA at least 10 business days prior to first use. Must include anticipated date of first use and date approval given. |
|
|
Term
| What is the maximum loss in a debit spread? |
|
Definition
| The maximum loss in a debit spread is the net debit in the premiums if they expire; the max profit is the difference between strike prices minues the net debit. You want debit spreads to widen by more than thte net debit to be profitible. |
|
|
Term
| In a trust account, what must you examine before exercising options? |
|
Definition
| The trust agreement to make sure the trustees are empowered to trade options in the trust account. |
|
|
Term
|
Definition
| If the "limit" gets "low" let's go! (and buy the stock cause you think it might go back up) |
|
|
Term
| Puts are in the money when? |
|
Definition
| The market price is trading BELOW the strike price. |
|
|
Term
| If a bond has declined by one point, how much value has it lost? |
|
Definition
| A 1/2 point on a stock equals =$.50; a 1/2 point on a bond =$5 |
|
|
Term
|
Definition
|
|
Term
| Explain the exercise style of OEX, SPX, and S&P 100 LEAPS. |
|
Definition
| OEX and S&P 100 are American style; SPX (S&P 500) are European style. |
|
|
Term
| Trick to remember the conversion ratio formula? |
|
Definition
| "Parc" the car. "Par" value divided by "C" for "Conversion price (Par Value/conversion price = Conversion ratio) |
|
|
Term
| What is marking the close? |
|
Definition
| Placing a buy order at the end of the trading day at a price higher than prevailing market price. |
|
|
Term
| What are examples of non cash payments? |
|
Definition
| Non cash includes gifts up to $100 per year; merchandise and prizes; travel for meetings and lodging and ocassional meals (but not for spouses). They will possibly ask so know A commission is classified as a cash payment and is not included on the list of non-cash payemtns. |
|
|
Term
| If subject to taping rule, how long do you have to install and how long do you keep the tapes? |
|
Definition
| If a firm is subject to the taping rule, it has 60 days to install taping system; maintain for 3 years from install; have readily available for the first two years, and still keep but archive in year three. They must be catalogued and dated. |
|
|
Term
| What is the amount cap for simplified arbitration? |
|
Definition
|
|
Term
|
Definition
| Options ads have to be approved by a registered options principal; |
|
|
Term
| If you list a stock you recommended in an ad or communication, what must you do? |
|
Definition
| You must list ALL recommendations you made within the past year, including the losers. |
|
|
Term
|
Definition
| Used to hedge a well diversified portfolio from market/systematic risk. |
|
|
Term
| What is retained earnings |
|
Definition
| Net income - Dividends paid |
|
|
Term
| What is a narrow based index option? |
|
Definition
| Made up of nine or fewer securities. - follows a narrow range of industries. |
|
|
Term
| What's a straddle and why is it used? Explain both Long and Short? |
|
Definition
| Buy a Call, Buy a put; or, sell a call, sell a put. All same strikes and dates. Long Used when you expect a Big move that could go either way as the result of a big news event or activity; the short straddle seller thinks the price won't be that much effected and won't move much. |
|
|
Term
| How often do you report if subject to taping rule? |
|
Definition
| Firms subject to taping report quarterly. |
|
|
Term
| What is a retail communication? |
|
Definition
| ANY written communication to more than 25 retail investors within a 30 day period. Registered principal approval is required . |
|
|
Term
| List exceptions to FINRA filing rules? |
|
Definition
| Correspondence*; institutional communications*; Advertisements previously approved and re-used; statistical updates to pre-existing templates previously filed; ads and literature solely related to recruitment or HR; ads that simply identfiy the firm's trading symbol; tombstone ads; press releases only available to media; prospectuses, prelim prospectuses; or offering circulars because they are disclosure docs; issuer created free writing prospectuses; independently prepared reprints of arciels or reports (but if you send it to more than 25 you gotta have it approved); communications that only list products and services; announcement that a member has participated in a private placement; retail comms that don't make ANY recommendation or promote a product or service; posting on electronic boards; research reports concerning only exchange-listed securities including exchange listed closed-end funds or master limited partnerships. |
|
|
Term
| If you appear in an unscripted forum like a chat room or seminar, what must you do? |
|
Definition
| 1. Be fair and balanced; 2. be reasonable and disclose if there is any conflict of interest invovled; must have written policies about such appearances and keep a log; they are not subject to principal pre-use approval. |
|
|
Term
| Trick to remmber parity price calculation? |
|
Definition
| Parity - I like weird parties S&M (new shares x market price = parity price) |
|
|
Term
| What painting the tape or wash sales? |
|
Definition
| selling and buying back stock muliple times to draw interest into the market, which can push up the price. |
|
|
Term
| What is marking the open. |
|
Definition
| Manipulative pricing at the start to influence opening price of a stock. |
|
|
Term
| What does the markup policy mean? |
|
Definition
| Applies to OTC and is based on availaiblity, price, transaction amount, plus services of the firm. Low value securities or low dollar amounts can be marked up. |
|
|
Term
| When does the holding period for tax purposes start on a stock that is purchased when an option is exercised (long call or short put)? |
|
Definition
| The day AFTER the option is exercised. It used to be on the day of the exercise but IRS changed to the day after. FINRA may not have caught up so keep that in mind. |
|
|
Term
| How do you calculate your break even on a call debit spread and a put debit spread? |
|
Definition
Always calculate your break even from the buying/long position. Call up, put down.
Call= Long exercise price + the net debit of premiums.
Put = Long exercise price - the net debit of the premiums |
|
|
Term
| What are corporate bonds quoted in? |
|
Definition
| 1/8ths example 100 1/2. Government securities use decimals or 32nds. |
|
|
Term
| What is the margin requirement for writing uncovered equity options? |
|
Definition
| 20% of the market value of the stock plus the premium for the option. |
|
|
Term
| How do you calculate the break even on a debit call spread? |
|
Definition
| Long Exercise price + net debit of premiums |
|
|
Term
| What is the last day and time an option can be exercised? |
|
Definition
| 5:30 p.m. eastern on the third Friday of the expiration month. |
|
|
Term
| What is the average payout ratio for a growth stock? |
|
Definition
|
|
Term
| What are the contract values of equity leaps? |
|
Definition
| Equity leaps represent 100 share of the underlying stock. |
|
|
Term
| What are yield-based interest rate options and how do you determine whether to buy calls or puts? |
|
Definition
| Always place your bet in the direction you think interest rates will go up. If you think interest rates are going up, buy call options. Down? Buy put options. They are used for hedging. |
|
|
Term
| State the order in which actions must be taken when opening a new options account. |
|
Definition
Proper sequence:
I. obtain essential facts from customer;
II. Get approval of the securities sales supervisor or branch office manager;
III. Enter customer's order;
IV. Obtain a signed options account agreement. |
|
|
Term
| What is the margin requirement for writing uncovered equity options? |
|
Definition
| Leap options with more than nine months to expiration can be purchased on margin and it is 75% of the premium value. |
|
|
Term
| What does a corporation do when it wants to open a margin account? |
|
Definition
| Whenever a corporation opens an account with a broker-dealer, a resolution by the board of directors, appointing specific individuals who have trading authority must accompany the application. In addition, if the company wishes to open a margin account, the company must also provide a copy of its charter or by-laws as evidence that the company is legally permitted to trade on margin. |
|
|
Term
| What is the dividend payout ratio? |
|
Definition
Measures percentage of earnings a company pays out in dividends.
Dividends per share / earnings per share = Dividend Payout Ratio
DPS = DPR
EPS |
|
|
Term
| What happens to yields when interest rates decline? What happens to bond prices? |
|
Definition
| When interest rates decline, Yields decline and bond prices go up. Yield to maturity and current yield follow interest rates. |
|
|
Term
| What are rules for option communications re: marketing. |
|
Definition
| Must be limited to general descriptions; must not contain recommendations or projected or past peformance or name a specific security. Must contain contact info to obtain the ODD. |
|
|
Term
| How do you determine the contract value of an index option? |
|
Definition
| Multiply $100 (not shares like we do with regular optoins). |
|
|
Term
| How do you calculate the premium value on a world currency option. |
|
Definition
| 1 point equals $100. Same as all other options. |
|
|
Term
|
Definition
| Customizable options offered on CBOE - you can customize exercises price, sytles, dates. |
|
|
Term
| If a US investor must accept payment in a foreign currency, the investor would buy? |
|
Definition
| Puts on the foreign currency. And remember, you can't hedge US dollars. |
|
|
Term
|
Definition
Market Price / Earnings Per Share = Price to Earnings Ratio.
Trick: Meps! |
|
|
Term
|
Definition
| Stop and buy if it gets to high. Order placed above market price. You don't want to miss out. |
|
|
Term
| What is the settlement day for an exercise of an option? |
|
Definition
| Two business days from the time the OCC receives the exercise notice. |
|
|
Term
| What are portfolio margin accounts? |
|
Definition
| Use quantitative models - for high net worth individuals. |
|
|
Term
| What are retained earnings and how do you calculate? |
|
Definition
| Net income - Dividends paid = Retained Earnings. An increase in retained earnings would result in an increase in sharenholder's equity on the company's balance sheet. |
|
|
Term
| What is the average price earnings ratio for the broad stock market? Tell me more about what P/E Ratios mean. |
|
Definition
| 20 to 25 times earnings (but depends on economic conditions). IF PE is really high, either the earnings will go up and reduce it, or the market price will drop to better reflect the true value of the company. It is also referred the multiple. High PE can mean higher growth potential. Low PE can mean lower growth potential or it is undervalued. |
|
|
Term
| How do interest rate or yield options settle and when? |
|
Definition
| In cash and European style, at expriration only - the third Friday of the expiration month. |
|
|
Term
| What options strategy is best if an investor wants to maintain a long position in the market while getting max protection from downside? |
|
Definition
| Buying Puts. Buy a put because you are protected to zero. |
|
|
Term
| What are the rules regarding correspondence? |
|
Definition
| Does not need to be approved by an ROP unless it is sent to more than 25 retail clients within a 30 day period and the correspondence makes an investment recommendation or promotes the services of the firm. |
|
|
Term
| If you wrote/sold a put, how are you taxed? |
|
Definition
| Exercise price of put - premium received = cost basis of stock purchased. |
|
|
Term
| When determining if a contract is in the money, what do you NOT consider? |
|
Definition
| The premium. Investors are never in or out of the money. You never consider the premiums or whether it is long or short. Long or short doesn't matter - just if a put or call. |
|
|
Term
| What is the expiration day for world currency options? |
|
Definition
| Third Friday of the expriation month. |
|
|
Term
| How do you determine breakeven on debit spreads? |
|
Definition
| Breakeven on debit spreads is determined from the long position. |
|
|
Term
|
Definition
| Stop and sell if the damn price fell (order placed below current market price). |
|
|
Term
| Do violations of firm policies have to be reported on a u4? |
|
Definition
| No - only regulatory and legal matters get reported on the U4 |
|
|
Term
| When is a long call in the money? |
|
Definition
| When the stock is trading above the strike price, it's in the money. |
|
|
Term
| What are the expiration months for world currency. |
|
Definition
|
|
Term
|
Definition
| Buyers pay the ask price, sellers receive the bid price. |
|
|
Term
| How do you calculate the break even on a debit put spread? |
|
Definition
| Long Exercise price - net debit of premiums |
|
|
Term
| When an option is "at the money" what is the time value? |
|
Definition
| The time value is the value of the premium - that's it. |
|
|
Term
| What is an option's intrinsic value? |
|
Definition
The number of points it is in the money.
Formula: Strike price - Intrinsic value = Time Value |
|
|
Term
|
Definition
| Short term - alwasys capital gains, never ordinary income because they are less than 12 months. |
|
|
Term
| What does the MSRB regulate? |
|
Definition
| Broker dealers, not issuers. An SRO that oversees the Muni market. Rules enforced by SEC and FINRA. |
|
|
Term
| What does a spread look like? |
|
Definition
| spread = BS (buy a call, sell a call) |
|
|
Term
| Explain constructive sales of appreciated stock positions. |
|
Definition
| When you hedge a position trying to avoid a capital gains tax. Creates a new holding period and cost basis as if you sold your stock. |
|
|
Term
| What does short against the box mean and how is it taxed? |
|
Definition
| When an investor is long and short the same amount of the same stock at the same time. Long 100 and short 100 of ABC. This means those two positions could close each other out. So if you are short against the box and write a call on the same stock, it's treated as naked bececause the long stock is already covering the short stock position. |
|
|
Term
| What is the settlement day for an option that is bought or sold? |
|
Definition
| Next business day following the trade date. |
|
|
Term
| Show the order of approving an options agreement. |
|
Definition
| Obtain facts; provide ODD BEFORE the account is approved for options trading; get the account approved by a SSS or ROP. If approved by a SSS first, an ROP must approve within 10 biz days. Then the agreement must be received in 15 calendar days. Then within 15 days of the account being approved for options trading, you must send the client the background to verify. |
|
|
Term
| Give a summary of the finra 10 disclosure reporting events and when do they have to be reported? |
|
Definition
| Must report in 30 days. 1. violated securities laws; subject of customer complaint involving theft; is denied registration; is indicted or convicted of any felony or any misdem. Related to securities; is a respondant in an SRO proceeding; is a partner of a firm that was suspended expelled or had its registration revoked; is a defendent in any securities or commodities related civil litigation or arbitration with an award suceeding 15k (or if firm, exceeding 25k); is associated with any business who is subject to a statutory disqualification; is the subject of disciplinary action involvijng the witholding of commission or imposition of fines in exceess of 2,500 |
|
|
Term
| What are statutory disqualifying events? |
|
Definition
| Making false statements in a U4; all felony convictions for 10 years; broad range of unlawful investment activities; expulsions from SROs; DUIs must be disclosed on an original filing |
|
|
Term
| How do you determine how much an index option costs? |
|
Definition
| Premium quote x the index multiplier - just like regular options. |
|
|
Term
|
Definition
| Failing to pay for securities before trading and trying to use profits to pay for it. |
|
|
Term
| True or false. Scripted public seminars delivered to more than 20 reteail investors must be approved by a principal of the firm. |
|
Definition
| If it is delivered to more than 25 that would be true. So false. If over 25, yes and a record of it must be kept. |
|
|
Term
| Who resolves promisary note disputes? |
|
Definition
| Promisary note disputes are resolved by FINRA appointed qualified aribtrators |
|
|
Term
| What are exceptions to pre-approval of retial communications? |
|
Definition
| If a communication is approved for use by another member and you don't change it; if it is a research report (unless it makes a recommendation); if it is posed on an online blog or forum; if it does not make recommendations or promote products of the firm; FINRA makes exemptions on a case by case. |
|
|
Term
| How many years do you have to keep sales literature and retail communications? |
|
Definition
| All approved sales lit and reprints must be kept for three years from last use in a file. It must have the name of the RP who approved and date; a copy of it and dates of use; and source of any chart or graph used; and if a retail comm did not require pre-use approval, the name of the person who distributed it. |
|
|
Term
| All retail communications must: |
|
Definition
| prominently disclose BD name; reflect any relationship with the member and non members named in the communication; must reflect the products and services offered by bd. |
|
|
Term
| What is an example of market manipulation? |
|
Definition
| Creating a misleading appearance of active trading unless it is a bona fide agency cross. |
|
|
Term
| Why would someone buy OEX LEAPS Puts? |
|
Definition
| They would provide a hedge for a large portfolio of large cap equity securities. |
|
|
Term
| What is the minimum background to obtain from a customer? |
|
Definition
| Investment objectives; employment status; estimated annual income from all sources; estimated net worth; estimated liquid net worth; marital status; dependents; age; experience and knowledge; ability to evaluate the risks (pretty much EVERYTHING!!!!!) |
|
|
Term
| Do you want credit spreads to narrow or widen? What is the max profit potential and max max loss? |
|
Definition
| We want credit spreads to narrow or expire. Max loss is the difference between the two strike prices less the net credit in the premiums. Max profit is the net credit in the premiums if the options expire. As an investor, you want net credits to expire so you can keep the premium -- as opposed to net debit, in which cas you want to close the sale to make a profit - sell them. |
|
|
Term
| Explain the difference between OEX and SPX? |
|
Definition
| OEX is the 100; SPX is the 500. |
|
|
Term
| What does a foreign company do to hedge when getting paid in dollars. |
|
Definition
| To summarize, in a foreign currency hedging question, establish the market direction you want for the foreign currency, then do the opposite to protect. Also you can't do options on the US dollar. |
|
|
Term
| What is the average payout ratio for a blue chip? |
|
Definition
|
|
Term
| When do Equity LEAPs settle? |
|
Definition
| Equity leaps settle on the second business day following exercise date |
|
|
Term
| When is a long put in the money? |
|
Definition
| When the market price of the stock is LESS THAN the exercise price. |
|
|
Term
| When do index options settle? |
|
Definition
| Next business day following exercise date. |
|
|
Term
| How do you determine strike prices of world currency options? |
|
Definition
| Take the spot price and move decimal accordingly. My trick: White countries - two decimal to right; Brown coutnries and Sweden: three decimals to right; Japanese Yen: Four digits to right. |
|
|
Term
| Long straddles are profitable when? |
|
Definition
| When they are outside the break evens. |
|
|
Term
| When do Index LEAPS settle. |
|
Definition
| Index leaps will settle in cash the next business day following exercise date. |
|
|
Term
| What are the contract values of index leaps? |
|
Definition
| Index leaps represent $100 times the value of the underlying index settled in cash. |
|
|
Term
|
Definition
| Alpha measures the excess return on investments after adjusting for market-related volatility and other random fluctuations |
|
|
Term
| What should you ignore when determining intrinsic values of options? |
|
Definition
| Whether they are long or short, and ignore the premiums too. And the investor. The investor is not in the money -- the contract is. Fight the urge to think about short/long investor. Focus on contract. |
|
|
Term
| Calls are in the money when? |
|
Definition
| The market is trading ABOVE the strike price. |
|
|
Term
| What do confirmations NOT have to show? |
|
Definition
| Trading volume or a limit price. |
|
|
Term
| What does earnings per share measure? |
|
Definition
| Total Earnings / Outstanding Shars |
|
|
Term
|
Definition
| The amount of PREMIUM which exceeds the value. The more the option is in the money, the higher the premium will be. |
|
|
Term
| What is the best outcome for an investor in a short straddle? |
|
Definition
| The investor with a short straddle would like the market price to close at the money, in order to keep all the premiums. |
|
|
Term
| What is churning an account? |
|
Definition
| It is excessive trading that clearly is taking place too often. The quality of the securities is not considered and is irrelevant. |
|
|
Term
| What do markups not apply to? |
|
Definition
| Government securities, Reg A, anything with a prospectus |
|
|
Term
| How many panelists if over 100k in arbitration claims? |
|
Definition
| If a claim is more than 100k or non-monitary the panel will consist of three panelist unless parties agree to less. |
|
|
Term
|
Definition
| I will tell you to sell just below the high. A stock is on its way back up. You expect it to get to 15 tops. It's at 10 today. Set your sell limit at 13. |
|
|
Term
| When might an institutional communication be considered retail? |
|
Definition
| If an institutional communication may be be redistributed to retail investors even though initially sent to institutional investors. |
|
|
Term
| Explain "concurrent with finra first use" examples. |
|
Definition
| Concurrent means you submit for approval within 10 days of first use (not before. Items that meet this requirement include: retail comms that promote registered investment companies like closed end funds, UITs, annuities; Generic investment companies do not have to be filed. Retail comms concerning public direct participation programs; registered CMOs; structured products or other registered derrivative products; any final filmed verion of a prior filmed "story board" unless it's general and educational retail comms that contain bond or mutual fund volatility ratings. Advertisting concerning government securities does not require filing. |
|
|
Term
| If you use an investment analysis tool what do you need to keep in mind? |
|
Definition
| You must give FINRA access to the tool if they ask for it. |
|
|
Term
| A vertical bull put spread is long the option with the (lower or higher option) |
|
Definition
| Lower. Vertical Bull buys the option with the higher strike price. |
|
|
Term
| What premiums do you use to determine break evens in straddles? |
|
Definition
| You use the total of BOTH premiums. |
|
|
Term
| Who needs to approve advertising and sales literature to prospects who have not received an ODD and what is the timing of this approval? |
|
Definition
| FINRA must approve 10 calendar days prior to first use. |
|
|
Term
| What is cash settlement for index options. |
|
Definition
An investor is long 1 SPX Aug 600 Put @7 when the index is at 650. The index closes at 550 and he exercises his option. What is the Cash Settlement of these transactions?
Premiums | Stock/Index
B-500 S +600
B - 550 (gets to buy at market, then "put it" to the buyer at the strike price)
So 50 x 100 = $5,000 cash settlement |
|
|
Term
| What is the loss potential on a short straddle? |
|
Definition
| Short straddles or short combos always have unlimited loss potential. |
|
|
Term
| Soft dollar fees inclue research, computer software, and other services in lieu of commissions, but what is not allowed in soft dollar arrangements? |
|
Definition
| Computer hardware, telephone lines, rent, meals or travel reimbursement, and overhead types. |
|
|
Term
| If a customer asks for a copy of the arbitration agreement, how long do you have to provide? |
|
Definition
| Within 10 days of the request. |
|
|
Term
| Define correspondence and what are the rules? |
|
Definition
| Different than retail communication. Any written communication to 25 or fewer retail investors within a 30 day period. DOES NOT need principal approval so long as no investment recommendation or promotion is made. Includes both Prospective and Existing clients. |
|
|
Term
| What are rules about hypthetical illustrations? |
|
Definition
| Hyopthetcial illustrations of mathmatical princiapsl are permitted on a fictitious company. |
|
|
Term
| Other social media rules. |
|
Definition
| Prior principal approval not required for interactive forums, but must supervise. A principal must approve any site if they intend to use for business purposes. |
|
|
Term
| What CAN'T you use to cover writing short positions in a Cash account? |
|
Definition
| Convertible bonds and warrants. You could in a margin account but not a cash account. |
|
|
Term
| Provide an example of front-running? |
|
Definition
| Trading because you know a block trade is coming up because you have non-public info. |
|
|
Term
| When is short call in the money? |
|
Definition
| When the stock is trading above the strike price, it's in the money. |
|
|
Term
| If an unathorized trade benefits a client, is it acceptable? |
|
Definition
| Unauthorized trading, even if benefits the client, is still against rules. |
|
|
Term
| What does 1 point on the VIX equal. |
|
Definition
|
|
Term
|
Definition
| Up to 3+ years (39 months) on the third Friday of the Expiration Month. |
|
|
Term
| How long does a BD have to keep a written option complaint? |
|
Definition
| Four years (used to be three so be careful if an old test question shows up) |
|
|
Term
| What is the CBOE Volatility Index Options (VIX)? |
|
Definition
| They work the opposite way of options and it is a baramoter of near-term investor sentiment. If you think the S&P is going down, you would buy VIX Call options. Remember it's opposite of everything else. It is an option that measures market expectation of 30 day S&P index options. Option on Options on a Feeling. |
|
|
Term
| What is this equation: y = a + bx + u |
|
Definition
y is the performance of the stock or fund.
a is alpha, which is the excess return of the stock or fund.
b is beta, which is volatility relative to the benchmark.
x is the performance of the benchmark, which is often the S&P 500 index.
u is the residual, which is the unexplained random portion of performance in a given year. |
|
|
Term
| What do long puts do? Who is obligated if exercised? |
|
Definition
| Long puts lock in a price at which stocks can be SOLD, not purchased to cover. The seller is obligated to buy from the buyer of the put at the strike price. |
|
|
Term
| What is a private placement |
|
Definition
|
|
Term
| What are suitability limits for options? |
|
Definition
| No more than 15% to 20% can be committed to purchasing options. |
|
|
Term
| What is an "agency cross" |
|
Definition
| When a broker dealer acts as a market maker represents the buyer and the seller in the same transaction. This is ok and common in OTC. |
|
|
Term
| What is interpositioning? |
|
Definition
| interpositioning is placing a second broker berween a customer and market maker to generate more commissions. |
|
|
Term
| Can Arbitrators send you to prison? |
|
Definition
| Arbitration does not allow prison sentences |
|
|
Term
| Which ads require principal approval? |
|
Definition
| Websites; bio on BD website; blogs with static content. Exception might be personal website (like a match.com profile). |
|
|
Term
| What are exceptions to predicting performance and projections? |
|
Definition
| Mostly prohibted - get that in your head. But two are reports produced by an investment analysis tool and research reports that might include price targets in certain circumstances. |
|
|
Term
| How long do members need to retain records of social media communications that are related to the BD busienss? |
|
Definition
|
|
Term
| When do VIX options expire? |
|
Definition
| Expire on the Wednesday that is 30 days prior to the third Friday of the calendar month immediately following the expiring month. THEREFORE, THE LAST DAY A CUSTOMER COULD CLOSE WOULD BE THE TUESDAY BEFORE EXPIRATION OF THE CONTRACT. They expire EUROPEAN style and are based on a february cycle. |
|
|
