General questions Flashcards
An options form letter sent to more than 25 prospective clients is considered what type of communication and must be approved by whom?
Options Sales Literature, approved in advance by the D-ROP.
If options communication is generic, does not make specific recommendations or show performance, and states where the ODD can be obtained, it does not need to include an ODD.
TRUE or FALSE
TRUE
Generic options communications, without an Options Disclosure Document attached but stating where an Options Disclosure Document can be obtained, DO or DO NOT need to be pre-filed with the SRO?
DO NOT
Maximum life of a LEAP? Maximum life of an index LEAP?
28 months; 36 months
LEAPS are exercised European or American style?
American style
If LEAP equity contracts are exercised, what must be delivered?
If index LEAP contracts are exercised, what must be delivered?
The actual underlying security;
The writer must pay the holder the in the money amount.
For LEAP equity and index contracts, what is the multiplier?
100
To generate income on a long stock position, the best choice is to BUY or SELL CALLS or PUTS ?
Sell calls on long stock position to generate income.
Discretionary orders must be reviewed “promptly” - what constitutes promptly?
By the end of the day.
Discretionary accounts must be reviewed in a supervisory capacity frequently by whom?
The D-ROP
What is the only options transaction that stops the counting of a stock’s holding period?
A put that has been bought against stock that has been held short term.
What happens to an option on the ex date when a company declares a stock dividend or a fractional stock split?
When a company declares a stock dividend or a fractional stock split, the number of shares per contract is increased and the price per share is reduced. So, 1 ABC Jan 60 Call where there is a 20% stock dividend will now cover 120 shares (100 x 1.2) and the strike price will become $60/1.2 = $50 per share. Note that the aggregate exercise value of the contract is unchanged at $6,000.
Which is acceptable to cover a short put position in a margin account?
The best answer is D.
For margin purposes, the following cover a short put position:
1) Deposit of cash or T-Bills equal to the exercise price (this covers the cost of buying the securities if there is an exercise);
2) Bank guarantee letter (by an approved bank for the maximum potential loss that the writer can experience. Thus, the bank is liable if the writer does not perform upon exercise);
3) Another long put at the same strike price or higher (allowing the individual to “put” the stock to someone else if exercised at the same price or better) with the same or later expiration; or
4) Short stock position in the same security (the credit from the short sale is kept in the customer account and can be used to “pay” for the cost of buying the securities if there is an exercise).
If a put is exercised before the ex date, what happens to the dividend?
By exercising the put, the owner will receive cash now. However, this will create a short sale of stock if the put owner wasn’t long that stock to begin with. So exercising a put option the day before an ex-dividend date means the put owner will have to pay the dividend.
What two options form a strangle?
An out the money put and an out the money call.
