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Series 9 study materials
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Series 9 practice questions

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Question 1Supervise the Opening and Maintenance of Customer Options Accounts

Under FINRA rules, when must a member firm furnish the options disclosure document ("Characteristics and Risks of Standardized Options") to a customer opening an options account?

  1. Before the account is approved for options trading Correct answer.
  2. Only upon the customer's written request
  3. Within 15 business days after the first options trade
  4. Only when the customer first writes an uncovered option

Explanation

FINRA Rule 2360 requires that a customer receive the current options disclosure document before the firm accepts an order for the customer's account. Delivery at or before account approval satisfies the requirement because no order can be accepted before approval.

Question 2Supervise the Opening and Maintenance of Customer Options Accounts

Before a customer's new options account may begin trading, the account must be approved by which of the following?

  1. The firm's operations manager
  2. The Series 7 registered representative
  3. A registered options principal Correct answer.
  4. A FINRA district office examiner

Explanation

FINRA Rule 2360 requires that each customer options account be approved or disapproved by a registered options principal, based on the customer's financial profile and investment objectives. A sales representative cannot approve his or her own customer's options account.

Question 3Supervise the Opening and Maintenance of Customer Options Accounts

After an options account is approved, within what period must the customer sign and return the options account agreement?

  1. 5 business days
  2. 15 days Correct answer.
  3. 10 calendar days
  4. 30 days

Explanation

FINRA Rule 2360 requires the customer to sign and return the options account agreement within 15 days after the account has been approved. If the agreement is not returned, the firm must take appropriate action, such as restricting the account to closing transactions.

Question 4Supervise the Opening and Maintenance of Customer Options Accounts

A customer purchases a listed equity call with 30 months to expiration at a premium of $8. Under Regulation T, what is the initial margin requirement per contract?

  1. $240, or 30% of the premium
  2. $600, or 75% of the premium Correct answer.
  3. $800, or 100% of the premium
  4. $400, or 50% of the premium

Explanation

A listed option with more than 9 months to expiration may be margined at 75% of its premium, while shorter-dated options must be paid for in full. Here 75% of the $800 premium equals $600.

Question 5Supervise the Opening and Maintenance of Customer Options Accounts

Which of the following transactions is permissible in a customer's cash account?

  1. Writing a call against stock the customer owns Correct answer.
  2. Writing an uncovered call
  3. Writing a put with no cash set aside for the exercise price
  4. Establishing a short straddle

Explanation

A cash account may not carry uncovered short option positions because the potential obligation can exceed the assets in the account. Writing calls against stock held long in the account is a covered position with no margin borrowing.

Question 6Supervise the Opening and Maintenance of Customer Options Accounts

A customer writes one uncovered XYZ June 50 call at a premium of $3 when XYZ trades at $48. XYZ is a standard equity option. What is the initial margin requirement?

  1. $1,060 Correct answer.
  2. $780
  3. $960
  4. $1,260

Explanation

The requirement is 100% of the premium plus 20% of the underlying value, less the out-of-the-money amount, subject to a minimum of the premium plus 10% of the underlying value. That is $300 + $960 − $200 = $1,060, which exceeds the $780 minimum.

Question 7Supervise the Opening and Maintenance of Customer Options Accounts

Absent a higher or lower tier based on trading volume, what is the standard position limit for equity options under FINRA Rule 2360?

  1. 10,000 contracts
  2. 25,000 contracts Correct answer.
  3. 5,000 contracts
  4. 50,000 contracts

Explanation

The standard position limit is 25,000 contracts on the same side of the market for each underlying security. FINRA may set higher or lower limits for particular classes based on trading volume and outstanding shares.

Question 8Supervise the Opening and Maintenance of Customer Options Accounts

How does a customer's exercise limit compare with the position limit for the same option class?

  1. One-half of the position limit
  2. The same as the position limit for the class Correct answer.
  3. 10,000 contracts regardless of the position limit
  4. Twice the position limit

Explanation

Under FINRA Rule 2360, the exercise limit for an option class equals the position limit for that class. This prevents a customer from avoiding the position limit by exercising contracts rather than trading them.

Question 9Supervise the Opening and Maintenance of Customer Options Accounts

Before a registered representative may exercise discretion in a customer's options account, the firm must have which of the following?

  1. Written authorization from the customer and ROP approval Correct answer.
  2. Approval from FINRA's district office
  3. An oral authorization confirmed on the next confirmation
  4. A power of attorney signed by the branch manager

Explanation

Discretionary authority requires the customer's prior written authorization, and the account must be approved for options and supervised by a registered options principal. Discretionary options accounts receive heightened review because the representative selects both the strategy and the timing.

Question 10Supervise the Opening and Maintenance of Customer Options Accounts

When making a customer-specific suitability determination for an options recommendation, a representative should focus primarily on which of the following?

  1. The clearing firm's margin requirements for the member firm
  2. The option's implied volatility compared with its historical volatility
  3. The customer's finances, objectives, and options experience Correct answer.
  4. The size of the position relative to the firm's inventory

Explanation

Customer-specific suitability requires an assessment of the customer's financial situation, investment objectives, risk tolerance, and experience with options. Market-based factors may inform the recommendation but do not substitute for the customer analysis.

Question 11Supervise the Opening and Maintenance of Customer Options Accounts

A customer sells the XYZ 50 call at $4 and buys the XYZ 55 call at $1.50, both expiring in the same month. What is the customer's margin requirement?

  1. $150
  2. $400
  3. $500
  4. $250 Correct answer.

Explanation

For a credit call spread, the requirement is the difference in strike prices less the net credit received, provided the long option expires on or after the short option. The spread is $500 wide and the net credit is $250, so $250 must be deposited.

Question 12Supervise the Opening and Maintenance of Customer Options Accounts

Which options strategy is generally permitted in a self-directed IRA?

  1. Writing covered calls against stock the IRA owns Correct answer.
  2. Selling naked puts on a leveraged ETF
  3. Writing uncovered calls on stocks with high implied volatility
  4. Writing a short straddle on a broad-based index

Explanation

IRA rules prohibit margin borrowing and pledge of account assets, which rules out uncovered short options and most spreads with unlimited risk. Covered call writing and protective puts are generally permitted because the obligation is fully collateralized within the account.

Question 13Supervise the Opening and Maintenance of Customer Options Accounts

How long must a member firm retain records of an options customer's account information after the account is closed?

  1. Three years after the account is opened
  2. Six years after the account is closed Correct answer.
  3. Indefinitely
  4. Two years after the last transaction

Explanation

Records supporting customer account information, including options account records, must be preserved for six years after the account is closed, with the most recent two years readily accessible. This supports supervisory and regulatory review of the account's full history.

Question 14Supervise the Opening and Maintenance of Customer Options Accounts

Under OCC exercise-by-exception processing, a long equity option that is in the money by how much at expiration is automatically exercised unless the carrying member instructs otherwise?

  1. $0.05 or more
  2. $1.00 or more
  3. $0.25 or more
  4. $0.01 or more Correct answer.

Explanation

OCC's exercise-by-exception threshold for equity options is $0.01, so any position in the money by at least one cent is exercised automatically. Firms may instruct OCC not to exercise positions below a stated threshold, and they must communicate their procedures to customers.

Question 15Supervise the Opening and Maintenance of Customer Options Accounts

To write a put in a cash account without using margin, the customer must have on deposit which of the following?

  1. The underlying stock held in escrow
  2. Cash equal to the exercise price plus commissions Correct answer.
  3. Fifty percent of the aggregate exercise price plus the premium
  4. The premium plus 20% of the underlying value

Explanation

A cash-secured put requires the writer to hold cash equal to the aggregate exercise price plus commissions, so the shares can be paid for if assigned. No margin loan is used, and the premium received may be applied toward the requirement.

Question 16Supervise the Opening and Maintenance of Customer Options Accounts

Which account would be aggregated with a customer's individual account for purposes of the options position limit?

  1. A market maker's proprietary account at the same firm
  2. An account of an unrelated person following the same newsletter
  3. An account of a corporation the customer controls Correct answer.
  4. An account at another broker-dealer the customer cannot control

Explanation

Position limits apply to positions under common control or acting in concert, so a corporation the customer controls is aggregated with the individual account. Firms must have procedures to identify accounts subject to aggregation across the organization.

Question 17Supervise the Opening and Maintenance of Customer Options Accounts

Options sales literature prepared by a registered representative must be which of the following?

  1. Approved by a registered options principal before use Correct answer.
  2. Filed with FINRA at least 10 days before use
  3. Approved by the OCC before distribution
  4. Reviewed by the SEC before distribution to retail clients

Explanation

Communications about options must be approved by a qualified principal, and options-specific material requires a registered options principal. The approval must occur before the material is used, and the firm must maintain records of the approval.

Question 18Supervise the Opening and Maintenance of Customer Options Accounts

For position limit purposes, which pair of positions is treated as being on the same side of the market?

  1. Short calls together with short puts
  2. Long calls and short calls
  3. Long calls together with long puts
  4. Long calls and short puts Correct answer.

Explanation

Positions that benefit from the same directional move in the underlying are aggregated. Long calls and short puts are both bullish, just as short calls and long puts are both bearish.

Question 19Supervise the Opening and Maintenance of Customer Options Accounts

A customer holding a long equity call decides to exercise it. By when must the exercise instruction reach the firm?

  1. Only after automatic exercise has occurred
  2. Before the firm's cutoff on the last trading day before expiration Correct answer.
  3. Anytime before the Saturday following expiration
  4. Within 30 days after the option expires

Explanation

Exercise notices must reach OCC by its deadline, so member firms set an earlier cutoff time and must disclose it to customers. Instructions arriving after the cutoff may not be processed before expiration.

Question 20Supervise the Opening and Maintenance of Customer Options Accounts

A customer writes a call on stock not owned but delivers a bank escrow receipt guaranteeing delivery of the shares if assigned. How is the position treated for margin and reporting purposes?

  1. As a short stock position
  2. As an uncovered short call
  3. As a long call position
  4. As a covered call position Correct answer.

Explanation

A short call backed by an escrow receipt is treated as covered because the underlying shares are assured for delivery. The position then requires no uncovered-option margin and is reported as covered for position limit purposes.

Question 21Supervise the Opening and Maintenance of Customer Options Accounts

A member firm's written supervisory procedures for options must provide for which of the following?

  1. Annual review of accounts approved by the ROP
  2. Quarterly re-delivery of a revised ODD to every options customer
  3. Weekly review of every covered call position
  4. Daily monitoring of underlying prices for uncovered shorts Correct answer.

Explanation

FINRA requires procedures reasonably designed to supervise customer accounts carrying uncovered short option positions, including frequent monitoring of the underlying's price relative to the strike. This allows the firm to act before losses become unmanageable.

Question 22Supervise the Opening and Maintenance of Customer Options Accounts

A trustee wants to open an options account for a trust. Before approving the account, the firm should obtain which of the following?

  1. A personal guarantee from the trustee
  2. A letter of credit from the trust's bank
  3. Documentation of the trustee's authority to trade options Correct answer.
  4. Written consent from each beneficiary for every trade

Explanation

The firm must verify that the person opening the account has authority under the trust instrument to trade options on the trust's behalf. Corporate and fiduciary accounts require similar documentation such as resolutions or authorizing provisions.

Question 23Supervise the Opening and Maintenance of Customer Options Accounts

A customer received the options disclosure document when the account opened. The document is later revised. What is the firm's obligation?

  1. Have procedures ensuring the customer gets the revised ODD Correct answer.
  2. Provide the revised ODD only upon the customer's written request
  3. Close the account and require it to be re-approved
  4. No action; the original delivery remains sufficient

Explanation

FINRA Rule 2360 requires procedures reasonably designed to ensure that customers receive the current options disclosure document, including revisions that affect the risks or terms described. Firms typically satisfy this by sending the revised document to all options customers.

Question 24Supervise the Opening and Maintenance of Customer Options Accounts

Which position constitutes a covered call write for margin purposes?

  1. Long 500 shares of XYZ and short 5 XYZ calls Correct answer.
  2. Long 1,000 shares of XYZ and short 5 XYZ calls
  3. Short 1,000 shares of XYZ and short 10 XYZ calls
  4. Long 1,000 shares of XYZ and long 10 XYZ calls

Explanation

Each listed call represents 100 shares, so coverage requires one call per 100 shares held long. Five calls against 500 shares is fully covered, while any calls in excess of the shares held would be treated as uncovered.

Question 25Supervise the Opening and Maintenance of Customer Options Accounts

A customer complains in writing that a representative recommended an unsuitable options strategy. Under FINRA rules, the firm must do which of the following?

  1. Forward it to FINRA within five business days
  2. Discard it if the customer suffered no loss
  3. Record and review it under the firm's supervisory system Correct answer.
  4. Refer it to OCC arbitration before any internal review takes place

Explanation

Written customer complaints must be logged and reviewed as part of the firm's supervisory system, and options-related complaints should be reviewed by personnel qualified in options. Review is required whether or not the customer sustained a loss.

Question 26Supervise the Opening and Maintenance of Customer Options Accounts

Who is responsible for approving a customer's options account before the customer's first options order is accepted?

  1. The clearing firm's margin clerk
  2. Any registered representative in the same branch
  3. The customer's attorney-in-fact
  4. A designated Registered Options Principal or qualified supervisor Correct answer.

Explanation

FINRA Rule 2360 requires a designated Registered Options Principal, or a qualified supervisor, to approve an options account before the first order is accepted. Approval must rest on a reasonable inquiry into the customer's financial situation, investment objective, and experience.

Question 27Supervise the Opening and Maintenance of Customer Options Accounts

A representative has completed an options account application for a new customer, but the designated options principal has not yet signed the approval. May the representative accept the customer's first options order?

  1. No, the order must wait until the principal approves the account Correct answer.
  2. Yes, if the customer signs the options agreement first
  3. Yes, if the order is a covered call
  4. No, unless the customer pays the premium in cash

Explanation

No options order may be accepted until the account is approved in writing by the designated options principal or qualified supervisor. Covered-call status or a signed agreement does not substitute for that approval.

Question 28Supervise the Opening and Maintenance of Customer Options Accounts

Under FINRA rules, when must a member firm furnish the current options disclosure document to a new options customer?

  1. Within 30 days after the first options trade
  2. Only after the customer's first options trade
  3. Only if the customer requests a copy
  4. At or before the time the options account is opened Correct answer.

Explanation

The current options disclosure document must be furnished at or before account opening so the customer can review the risks before trading. Delivery after the first trade is too late.

Question 29Supervise the Opening and Maintenance of Customer Options Accounts

Which customer information is most directly required for a member firm to make the reasonable inquiry needed to approve an options account?

  1. The customer's marital status and voter registration
  2. The names of the customer's other brokerage firms
  3. The customer's employer's stock symbol
  4. Investment objective, financial situation, and investment experience Correct answer.

Explanation

Reasonable inquiry focuses on the customer's investment objective, financial situation, tax status, and investment experience. These facts allow the principal to judge which options strategies are suitable.

Question 30Supervise the Opening and Maintenance of Customer Options Accounts

A customer applying for an options account declines to provide any financial information but insists on writing uncovered calls. What is the most appropriate supervisory action?

  1. Deny the account or approve it only for limited strategies consistent with the information available Correct answer.
  2. Refer the application to the clearing firm's margin department for automatic approval
  3. Approve the account for uncovered writing because the customer signed the application
  4. Approve the account for all options strategies and monitor it monthly

Explanation

The principal cannot approve an account for uncovered writing without a reasonable basis to judge suitability. Declining the account or limiting it to lower-risk strategies is appropriate when financial information is missing.

Question 31Supervise the Opening and Maintenance of Customer Options Accounts

A customer wants a relative to enter options orders in the customer's account. What is required before the relative may do so?

  1. Only the customer's account number and online password
  2. A power of attorney filed with the SEC
  3. A written trading authorization approved by the firm Correct answer.
  4. A verbal authorization confirmed in the customer's next statement

Explanation

Third-party trading authority must be in writing and approved by the firm before the person may enter orders. The firm must also supervise the arrangement.

Question 32Supervise the Opening and Maintenance of Customer Options Accounts

A corporation wants to open an options account. Which document should the firm obtain to identify who may trade options for the corporation?

  1. The corporation's articles of incorporation only
  2. A letter from any one shareholder
  3. A corporate resolution identifying the authorized individuals Correct answer.
  4. The corporation's most recent tax return only

Explanation

For a corporate account, the firm needs a resolution or similar document identifying the individuals authorized to trade options. Articles of incorporation alone do not show trading authority.

Question 33Supervise the Opening and Maintenance of Customer Options Accounts

An account is approved for covered call writing only. The customer calls and wants to buy an uncovered put. What should the representative do?

  1. Enter the order if the customer signs a new disclosure document
  2. Decline the order because it exceeds the approved trading level Correct answer.
  3. Enter the order if the premium is less than $500
  4. Enter the order and obtain approval the next day

Explanation

The representative may accept only orders within the account's approved trading level. A new strategy requires principal review and approval before the order.

Question 34Supervise the Opening and Maintenance of Customer Options Accounts

A customer wants to exceed the standard position limit for an options class because the positions are bona fide hedges of stock holdings. What must the firm do before relying on a hedge exemption?

  1. Obtain and document approval under the firm's procedures and the applicable exchange rules Correct answer.
  2. Reduce the position to the limit before requesting an exemption
  3. Wait until the position is reported to the OCC
  4. Nothing, because hedge positions are always exempt

Explanation

Hedge exemptions are not automatic; the firm must apply the exchange and FINRA procedures, document the hedge, and obtain required approvals. The principal should not rely on the exemption without that support.

Question 35Supervise the Opening and Maintenance of Customer Options Accounts

A customer holding a long option that is in the money wants to be certain the option is not exercised at expiration. What should the firm's procedures require?

  1. No action is needed because the OCC does not exercise in-the-money options by default
  2. The firm must automatically sell every long option shortly before the market closes
  3. The customer must telephone the OCC directly on the morning of expiration to block exercise
  4. The customer must submit contrary exercise instructions by the firm's stated deadline Correct answer.

Explanation

Exercises are processed by exception, so an in-the-money long option may be exercised unless the customer provides contrary instructions by the firm's deadline. Firms set internal deadlines before the OCC deadline so they can process those instructions.

Question 36Supervise the Opening and Maintenance of Customer Options Accounts

Which supervisory practice best addresses the risk that customers may inadvertently allow long options to expire in the money?

  1. Reviewing expiring positions and reminding customers of exercise choices Correct answer.
  2. Liquidating every long option position one week before expiration without customer consent
  3. Refusing to accept any exercise instructions after the expiration date has passed
  4. Transferring all expiring options into the firm's proprietary account

Explanation

Supervisory procedures should identify expiring positions and give customers a chance to decide on exercise or offset. Liquidation without customer direction or transfer to the firm's account is not appropriate.

Question 37Supervise the Opening and Maintenance of Customer Options Accounts

When a customer buys an option in a cash account, the customer must have sufficient cash to pay the premium in full because

  1. the clearing firm guarantees the premium
  2. the premium is refundable after exercise
  3. options cannot be purchased on margin Correct answer.
  4. the option is always exercised automatically

Explanation

Option premiums must be paid in full; customers cannot buy options on margin. A cash account must therefore have sufficient funds to pay the premium.

Question 38Supervise the Opening and Maintenance of Customer Options Accounts

A customer is transferring an options account to another member firm. Which step is most consistent with proper supervision?

  1. Transfer only the cash balance and not the option positions
  2. Require the customer to sign a new options agreement with the old firm
  3. Cancel all open orders and close all positions before the transfer
  4. Verify open positions and verify that the receiving account has been approved for those strategies Correct answer.

Explanation

Before accepting transferred option positions, the receiving firm should confirm the positions and ensure the account is approved for the strategies involved. The old firm should not simply liquidate or omit the positions.

Question 39Supervise the Opening and Maintenance of Customer Options Accounts

After a customer who held short uncovered options dies, what is the most appropriate supervisory response?

  1. Freeze the account indefinitely until the probate court issues a final ruling
  2. Transfer the short options automatically to the deceased customer's spouse
  3. Exercise every long option and disregard all short option positions
  4. Review the positions promptly under the firm's deceased-account procedures Correct answer.

Explanation

The firm should promptly review the account under its deceased-account procedures so that market risk to the estate is addressed. Automatic transfers or indefinite freezes are not appropriate without following those procedures.

Question 40Supervise the Opening and Maintenance of Customer Options Accounts

A representative suspects that an elderly customer who wants to write uncovered calls may lack capacity to understand the risk. What should the representative do first?

  1. Close the account immediately without telling the customer
  2. Ask the customer's neighbor to co-sign the order as a witness
  3. Accept the order because the customer signed the account application and appears alert
  4. Escalate the concern under the firm's senior-investor procedures Correct answer.

Explanation

Senior-investor procedures are designed to escalate suspected diminished capacity before a high-risk transaction. The representative should not rely solely on a signed application or close the account without notice.

Question 41Supervise the Opening and Maintenance of Customer Options Accounts

A registered representative employed by another broker-dealer wants to open an options account at your firm. What should your firm require?

  1. Only the customer's personal guarantee
  2. Written notice to the employer as required by FINRA Rule 3210 Correct answer.
  3. A letter from the customer's spouse
  4. A waiver from the OCC

Explanation

FINRA Rule 3210 requires an associated person to give prior written notice to the employing member before opening an account at another member. The firm should obtain evidence of that notice and follow the employer's instructions on duplicate statements.

Question 42Supervise the Opening and Maintenance of Customer Options Accounts

Which element is required in a firm's supervisory system for options accounts?

  1. Quarterly delivery of the options disclosure document to every customer
  2. Annual review of written supervisory procedures by senior management Correct answer.
  3. Monthly re-approval of every customer's options account
  4. Daily approval of every options order by the Registered Options Principal

Explanation

FINRA Rule 3110 requires senior management to review the firm's supervisory system and written procedures at least annually. Daily approval of every order or monthly re-approval of every account is not required.

Question 43Supervise the Opening and Maintenance of Customer Options Accounts

After an options account is approved, the customer must sign and return the options account agreement within how many days?

  1. 45 days
  2. 60 days
  3. 15 days Correct answer.
  4. 30 days

Explanation

FINRA Rule 2360 requires the customer to sign and return the options account agreement within 15 days after account approval. If it is not returned, the firm must restrict the account.

Question 44Supervise the Opening and Maintenance of Customer Options Accounts

A customer informs the representative that their investment objective has changed from conservative income to aggressive growth. What should the firm do?

  1. Ignore the change because the original application remains controlling
  2. Update records and have the principal review the approval Correct answer.
  3. Automatically approve the account for uncovered writing
  4. Close the account immediately without further review

Explanation

A material change in the customer's objective can affect whether the approved options level remains suitable. The firm should update its records and have the principal review the approval.

Question 45Supervise the Opening and Maintenance of Customer Options Accounts

What record should a firm keep to show that an options account was properly approved?

  1. Only the first trade confirmation showing that an options order was executed
  2. Only the customer's signature on the options account agreement, kept in the branch file
  3. The representative's oral confirmation to the branch manager, noted in the representative's own log
  4. The principal's written approval and the customer information behind it Correct answer.

Explanation

The firm should be able to show the principal's written approval and the customer information considered. That record supports the reasonable-inquiry and suitability requirements.

Question 46Supervise the Opening and Maintenance of Customer Options Accounts

A principal is reviewing an options account application for a customer with limited income and no investment experience. Which statement is most accurate?

  1. The principal may skip the suitability review if the customer signs a waiver
  2. The principal may approve the account without any customer information
  3. The principal may approve the account only for strategies consistent with the customer's profile Correct answer.
  4. The principal may approve all strategies because the customer requested them

Explanation

Approval must be based on the customer's profile, so the principal may approve only strategies the customer can reasonably be expected to handle. A waiver or missing information does not eliminate the suitability review.

Question 47Supervise the Opening and Maintenance of Customer Options Accounts

A customer's account is approved for covered calls, but the representative recommends a ratio spread that involves uncovered short calls. What is the supervisory concern?

  1. The strategy is automatically permitted because the customer has options approval
  2. The recommended strategy exceeds the approved level and may be unsuitable Correct answer.
  3. The representative may proceed if the trade is small
  4. The customer's signature on the application waives the concern

Explanation

The approved level defines the strategies the account may use. A ratio spread with uncovered short calls exceeds covered-call approval and requires principal review before trading.

Question 48Supervise the Opening and Maintenance of Customer Options Accounts

A principal notices a pattern of frequent, short-term options trading in a customer account with modest income. What is the principal's most appropriate response?

  1. Close the account without notice
  2. Ignore it because the customer initiated the trades
  3. Review the activity for suitability and document the review Correct answer.
  4. Increase the customer's approved level

Explanation

A pattern of frequent trading in a modest account may raise suitability or excessive-trading concerns. The principal should review and document the review rather than ignore it or automatically expand the approval.

Question 49Supervise the Opening and Maintenance of Customer Options Accounts

A customer's options account is approved for long options only. The customer wants to write a covered call against stock already held in the account. What should happen?

  1. The representative may enter the order because the customer already holds the stock
  2. The order is prohibited in all circumstances for an account with only long-option approval
  3. The principal should approve the added strategy first Correct answer.
  4. The customer must first sell the stock and then request a new account approval

Explanation

Adding covered call writing is a new strategy that requires principal approval based on the customer's profile. Holding the stock makes the strategy covered, but it does not eliminate the approval requirement.

Question 50Supervise the Opening and Maintenance of Customer Options Accounts

Which of the following is a permissible way for a firm to satisfy the options disclosure requirement for an account opened online?

  1. Waiting until the first trade confirmation is mailed to the customer
  2. Posting the options disclosure document on a public website without any customer-specific delivery
  3. Electronic delivery before opening, with evidence of delivery Correct answer.
  4. Reading a summary of the options disclosure document aloud during a telephone call

Explanation

Electronic delivery can satisfy the options disclosure document requirement if it is made before account opening and the firm can show delivery. A public website posting or a later confirmation does not satisfy customer-specific delivery.