I had to do a calculation for Tax-free equivalent yield. Maximum Gain=DSP – Net PremiumMaximum Loss=Net PremiumBreakeven=Higher Strike Price – Net Premium\begin{aligned} &\text{Maximum Gain}=\text{DSP – Net Premium}\\ &\text{Maximum Loss}=\text{Net Premium}\\ &\text{Breakeven}=\text{Higher Strike Price – Net Premium}\\ \end{aligned}Maximum Gain=DSP – Net PremiumMaximum Loss=Net PremiumBreakeven=Higher Strike Price – Net Premium, Maximum Gain=Net PremiumMaximum Loss=DSP – Net PremiumBreakeven=Higher Strike Price – Net Premiumwhere:DSP = Difference in Strike Prices\begin{aligned} &\text{Maximum Gain}=\text{Net Premium}\\ &\text{Maximum Loss}=\text{DSP – Net Premium}\\ &\text{Breakeven}=\text{Higher Strike Price – Net Premium}\\ &\textbf{where:}\\ &\text{DSP = Difference in Strike Prices}\\ \end{aligned}Maximum Gain=Net PremiumMaximum Loss=DSP – Net PremiumBreakeven=Higher Strike Price – Net Premiumwhere:DSP = Difference in Strike Prices. If the investor has received more in premiums than he paid out, it is a credit (CR) spread. That rate applies only to those who passed both the SIE exam and the Series 7 exam. Let's use the four-step process to solve the following problem: A spread occurs when an investor longs and shorts the same type of options contracts (calls or puts) with differing expirations, strike prices or both. Of the 50 or so options-related questions on the Series 7 exam, approximately 35 deal specifically with options strategies. For breakevens, bear in mind the helpful acronym PSH: In a Put spread, Subtract the net premium from the Higher strike price. This transaction is referred to as a zero-sum game, where the buyer and seller reach the breakeven point simultaneously. A chartered financial analyst is a professional designation given by the CFA Institute that measures the competence and integrity of financial analysts. By examining Figure 2, entitled “Intrinsic Value”, it’s clear that the contract is a call and that the market is above the strike (exercise) price, and that the contract is in-the-money, where it has an intrinsic value. There is one additional spread called the "debit call spread," sometimes referred to as a "net debit spread", which occurs when an investor buys an option with a higher premium and simultaneously sells an option with a lower premium. Therefore, to determine that amount, simply multiply the breakeven price by 100. We asked several accomplished securities pros what they wish they knew before they earned their license and started their career, and what they thought all aspiring securities professionals should know. Or, if you’re just getting started, we offer SIE packages and an SIE and Series 7 combo series. The arrows in the chart above match the arrows within the loop for a long straddle. If you look at buying a call and buying a put, an imaginary loop around those positions is a straddle—in fact, it is a long straddle. If the investor has created a credit spread, use the acronym CVN, which stands for Credit/Valueless/Narrow. Series 7 Top-off Exam. Sellers (those in credit positions), want the contracts to expire valuelessly and the spread in premiums to narrow. This is where the matrix in Figure 1 becomes a useful tool. If asked, the calculation of the breakevens is the same, and the same general strategies—volatility or no movement—apply. The test is administered by FINRA and … Know the bonds such as overlapping bonds, moral obligation bond, short term munis, VRDOs ... etc. A collar, commonly known as a hedge wrapper, is an options strategy implemented to protect against large losses, but it also limits large gains. Therefore, it can be considered a challenging exam. The problem likewise states that the investor closes the position. Thinking about a career in securities? That said, the feedback is mixed and similar to my SIE Exam difficulty discussion, the degree of difficulty for the new top-off exam is quite dependent on the student’s background. The market value of the underlying stock must drop below the strike price (go in-the-money) enough to recover the premium for the contract holder (buyer, long). As Figure 1 demonstrates, buyers pay premiums to secure all the rights, while sellers receive premiums for shouldering the obligations—also known as risk. The Series 7 exam, also known as the General Securities Representative Exam (GSRE), is a test all stockbrokers must pass, in order to acquire a license to trade securities. Although this exam covers a broad array of financial topics, questions about options tend to be the most challenging. Both are in their late 20s and each earns over $100,000. Hi everyone, I'm studying for my Series 7 in a week and thought i'd share something thats helping me with the options basics. The Financial Industry Regulatory Authority (FINRA) administers the exam. Once you've identified the strategy as a spread and identified the position as a debit, the investor expects the difference between the premiums to widen. When you determine the position, consult the block in the matrix illustrating that position, and focus on that block alone. If the investor is selling a call and selling a put on the same stock with the same expiration and the same strike price, it is a short straddle. In this article, we’ll share the details, including Series 7 pass rates and topics, and how to improve your odds of success. The top off I have had 20 students take so far and they all come back with drastically different reactions, New comments cannot be posted and votes cannot be cast, More posts from the Series7exam community. - Options. With the legacy 7 even though the tests were different my students would come back with mostly similar feedback. This makes it much easier to visualize the movement of the underlying stock between the strike prices. Tip: For breakevens, remember the acronym CAL: In a Call spread, Add the net premium to the Lower strike price.Using the above example of a bull or DR call spread: The difference in Strike Prices – Net Premium(60-50) – 6 = 10 – 6 = 4 x 100 = $400. Options strategies questions in the Series 7 exam, cover the following areas: Within these sub-categories, questions focus on the following primary areas: By definition, a contract requires two parties. The Series 7 is an exam and license that entitles the holder to sell all types of securities with the exception of commodities and futures. By using Investopedia, you accept our. This investor will then sell the contract for its intrinsic value because there is no time value remaining. The Series 7 exam is a test a stockbroker must pass if they want to be licensed to trade a variety of securities. Changes to the Series 7 Exam. Follow the dollars – Make a list of dollars in out: The maximum gain = strike price – premium x 100, Maximum loss = strike price – premium x 100, Maximum gain = unlimited (the investor is long a call), Breakeven = add the sum of both premiums to the call strike price and subtract the sum from the put strike price, The maximum gain = difference in strike prices – net premium, Breakeven = lower strike price + net premium, Maximum loss = difference in strike prices – net premium. So know the formula. At what points will the investor break even? A registered principal is a licensed securities dealer who is also empowered to oversee operational, compliance, trading, and sales personnel.