Basic Options Transactions – Series 7 Exam
- April 2, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
Basic Options Transactions – Series 7 Exam Guide
📘 Understand the Core of Options Trading for Your FINRA Exam
📌 What Are Basic Options Transactions?
Options are contracts that give the buyer the right, but not the obligation, to buy or sell a security at a specified price within a specified time. The Series 7 Exam tests your understanding of the four fundamental options transactions:
🟢 1. Buying Calls (Long Call)
- Right to buy stock at strike price
- Bullish strategy – expect stock to rise
- Limited loss (premium paid), unlimited upside
📈 Used for speculation or leveraged exposure
🔴 2. Selling Calls (Short Call)
- Obligation to sell stock at strike price if exercised
- Bearish or neutral outlook
- Unlimited loss potential if uncovered
📉 Used for income generation or in covered call strategies
🟢 3. Buying Puts (Long Put)
- Right to sell stock at strike price
- Bearish strategy – expect stock to fall
- Limited risk (premium), high reward if stock drops
📉 Common for downside protection or speculation
🔴 4. Selling Puts (Short Put)
- Obligation to buy stock if exercised
- Bullish or neutral expectation
- Risk of assignment if stock drops below strike
📈 Used to generate income or potentially acquire stock at a discount
📊 Key Concepts to Know for the Series 7 Exam
| Transaction | Market Outlook | Max Gain | Max Loss | Breakeven |
|---|---|---|---|---|
| Buy Call | Bullish | Unlimited | Premium paid | Strike + premium |
| Sell Call | Bearish/Neutral | Premium received | Unlimited (if naked) | Strike + premium |
| Buy Put | Bearish | Strike – premium | Premium paid | Strike – premium |
| Sell Put | Bullish/Neutral | Premium received | Strike – premium | Strike – premium |
🧠 Series 7 Tips
✔ Understand rights vs. obligations
✔ Know profit/loss scenarios
✔ Expect test questions on breakeven and maximum gain/loss
✔ Practice T-chart logic to track positions and obligations
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Learn how to break down complex options questions with ease. Our Series 7 course includes detailed breakdowns, diagrams, and exam simulations.
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🧩 Focus Keyphrase: Basic Options Transactions – Series 7 Exam
📢 Meta Description: Understand the basic options transactions tested on the Series 7 exam. Learn the key differences between buying and selling calls and puts at Options America.