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FINRA Series 7 General Securities Representative Exam

3. Provides Information, Makes Recommendations, Transfers Assets / Options: practice questions

Our FINRA Series 7 bank has 50 questions on this topic. Here are 5 of them with answers; the full mock exam draws from every topic, like the real one.

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Question 1

How does the OCC assign exercise notices to clearing member firms?

  1. To the firm with the largest short position
  2. In alphabetical order of firm name
  3. To the firm with the oldest short position
  4. On a random basis
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D. On a random basis — The OCC assigns exercises randomly to clearing members; firms then assign to customers using a random, first-in-first-out or other fair method disclosed to customers (Rule 2360(b)(23)).

Question 2

A customer writes 1 XYZ 30 put at 2 and is assigned. The cost basis of the 100 shares bought is:

  1. $3,000
  2. $200
  3. $3,200
  4. $2,800
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D. $2,800 — When a short put is assigned, the premium received reduces the cost basis: ($30 - $2) x 100 = $2,800.

Question 3

A customer is long 500 shares of a stock and wants to protect against a decline while keeping the upside. The customer should:

  1. Buy 5 puts
  2. Sell 5 puts
  3. Buy 5 calls
  4. Sell 5 calls
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A. Buy 5 puts — Buying puts sets a floor under the long stock and leaves unlimited upside, less the premium; selling calls gives only partial protection and caps gains.

Question 4

A customer sells 1 uncovered XYZ 50 call at 3 when XYZ is at $52. Using FINRA's standard formula, what is the margin requirement?

  1. $1,340
  2. $1,640
  3. $1,040
  4. $820
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A. $1,340 — 100% of premium ($300) + 20% of the underlying value ($1,040) - out-of-the-money amount ($0) = $1,340; this exceeds the minimum of premium + 10% of underlying ($820) (Rule 4210(f)(2)).

Question 5

A customer expecting high volatility but unsure of direction would most likely:

  1. Buy a straddle
  2. Write a straddle
  3. Write a covered call
  4. Buy a bull call spread
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A. Buy a straddle — A long straddle profits from a large price move in either direction.

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