Series 9

A customer wants to begin trading options. Before any options transaction can be approved, the registered representative must obtain which document?

• AA completed Options Account Agreement signed by the customer
• BA margin agreement and hypothecation agreement
• CAn Investment Adviser agreement under the Investment Advisers Act
• DA written power of attorney authorizing the representative to trade

The Options Disclosure Document (ODD) must be delivered to a customer:

• AAt or prior to the time the account is approved for options trading
• BWithin 15 business days after the account is approved
• COnly if the customer requests it in writing
• DAt the time of the first options transaction

A branch manager reviewing a new options account application notes the customer has 3 years of investment experience, a net worth of $85,000, and annual income of $60,000. The customer wants approval for Level 2 options trading (covered calls and long options). The manager should:

• AApprove the account as the financial profile is appropriate for Level 2 trading
• BDeny the account because net worth below $100,000 disqualifies options trading
• CApprove only Level 1 (covered calls only) based on the net worth
• DRequire the customer to complete a 10-hour options course first

Which of the following is NOT required information when opening a customer options account?

• ACustomer's employment status and occupation
• BCustomer's investment objectives
• CCustomer's Social Security Number
• DCustomer's mother's maiden name

Under FINRA rules, which registered person must approve a customer's account for options trading?

• AA Registered Options Principal (ROP)
• BAny Series 7-licensed registered representative
• CThe firm's Chief Compliance Officer
• DAny Series 24-licensed General Securities Principal

An updated ODD supplement must be sent to existing options customers:

• ABefore the customer effects an options transaction following a material amendment
• BOnly when the customer opens a new account at the firm
• CAnnually regardless of whether there have been any material changes
• DOnly if the customer requests an updated copy in writing

A customer who has been approved for Level 2 options trading (long calls and puts, covered calls) asks to write uncovered (naked) puts. The representative should:

• ARefer the request to the ROP for a higher approval level determination
• BApprove the trade because puts are less risky than calls
• CExecute the trade since the customer already has options approval
• DDeny the request as uncovered puts are prohibited for retail customers

For an options account with a corporate customer, the branch manager must verify that:

• AThe corporate charter or organizational documents authorize options trading
• BThe corporation has a minimum net worth of $500,000
• CAt least two corporate officers have approved the options application
• DThe corporation's shares are publicly traded

The Options Clearing Corporation (OCC) publishes the Options Disclosure Document. The OCC is also known as:

• AThe issuer and guarantor of all listed options contracts
• BThe exchange where most equity options are traded
• CA FINRA-supervised self-regulatory organization
• DThe government body that regulates options markets

A customer applies to trade options and discloses no prior investment experience, limited financial resources, and a speculative investment objective. How should the supervising ROP respond?

• ADeny or limit options approval given the mismatch between limited experience/resources an…
• BApprove full options trading since the customer has disclosed a speculative objective
• CApprove Level 1 only because any speculative objective qualifies for at least basic optio…
• DApprove the account but require all trades to be submitted for principal review

After approving an options account, a ROP discovers the customer provided false information about their financial situation on the application. The ROP should:

• ARestrict or close the options account and document the findings
• BContinue the account since the false information was the customer's responsibility
• CSimply require the customer to resubmit an accurate application
• DFile a SAR with FinCEN and wait for regulatory guidance before acting

Under the options account rules, the signed Options Account Agreement must be received by the firm within:

• A15 days after account approval
• B5 business days after the first options transaction
• C30 calendar days after account opening
• DBefore the second options transaction is executed

A customer already approved for options trading moves from one branch of a firm to another branch of the same firm. The account supervisor at the new branch must:

• AReview the account for suitability before allowing options trading to continue
• BObtain a new Options Account Agreement since the branch has changed
• CIssue a new ODD because branch changes require fresh disclosure
• DDo nothing since the approval transfers automatically within the same firm

Which of the following customers would be LEAST likely to receive approval for options trading?

• AA retired 78-year-old living on Social Security with no prior investment experience and m…
• BA 45-year-old physician earning $400,000 annually with a growth-oriented portfolio
• CA 35-year-old technology professional with 5 years of options experience
• DA small business owner with $250,000 liquid net worth and a speculative objective

When a customer opens a discretionary options account, the Options Account Agreement must be signed by:

• ABoth the customer and the Options Principal of the firm
• BOnly the customer, as discretionary authority is covered by the power of attorney
• CThe registered representative and branch manager only
• DThe customer, the registered representative, and the discretionary manager

A registered representative recommends buying 10 XYZ January 50 calls to a customer who has stated a conservative income objective. The options principal reviewing this recommendation should:

• AQuestion the suitability of a speculative long call position for a conservative income-or…
• BApprove the trade because long calls have limited loss potential
• CApprove the trade if the customer has sufficient funds to pay the premium
• DApprove the trade because the customer's income objective might benefit from premium inco…

An options supervisor performs periodic account reviews. Which account activity should raise the most concern?

• AA customer consistently buying far out-of-the-money options with 5-10 days to expiration
• BA customer maintaining a covered call position on a stock they have owned for 3 years
• CA customer using long puts to hedge a large equity position
• DA customer rolling a covered call forward to a later expiration

Under FINRA Rule 2360, options account records must be retained for:

• A3 years, with the most recent 2 years in an easily accessible location
• B6 years from the date of the last activity in the account
• C1 year from account closure
• D5 years from the date of each transaction

A customer's financial situation materially changes — she loses her job and her net worth drops by 70%. The branch supervisor should:

• AReview the account and potentially restrict options trading to the lowest risk approval l…
• BDo nothing since the original approval remains valid until the customer requests a change
• CContact the customer to encourage her to sell any open options positions immediately
• DTransfer all options positions to a margin account to reduce settlement risk

Which of the following factors must an options supervisor consider when evaluating the suitability of an options strategy for a customer?

• AAll of: investment objectives, financial situation, investment experience, and risk toler…
• BOnly the customer's net worth and annual income
• COnly the customer's stated investment objective
• DOnly whether the customer has previous options experience

A customer has an options account and requests discretionary authority be given to a third-party investment adviser. The branch manager should ensure:

• AThe firm has procedures to supervise discretionary options trading, and written authoriza…
• BNo discretionary authority can be granted in an options account under any circumstances
• CThe investment adviser passes a Series 4 examination before exercising discretion
• DThe customer closes the existing options account and opens a new discretionary one

When reviewing a customer's options account, a supervisor notices the customer has been writing covered calls every month on the same stock for two years and reinvesting the premiums. This activity is most likely:

• AA suitable income-generating strategy for a customer with a large equity position
• BAn unsuitable pattern indicating the customer does not understand options risk
• CA violation of position limits because of the recurring nature
• DA front-running violation that must be reported to FINRA

A supervisor is reviewing options activity in a customer's account. The customer has purchased 20 contracts of a single stock option expiring in 3 days. The stock has declined significantly and the options are now 15% out-of-the-money. The supervisor should:

• AReview the account to determine if this position is consistent with the customer's profil…
• BCancel the trades since the positions are losing money
• CHave the representative immediately sell the positions to prevent further loss
• DTake no action since the positions are within approved option trading levels

Customer "John Doe Trust" requests options trading approval. The supervisor must first determine:

• AWhether the trust document authorizes options transactions
• BWhether the trust is registered as an investment company
• CWhether the trustee has a Series 7 license
• DWhether the trust has a minimum of $1 million in assets

An options account supervisor must update account information when:

• AThe customer notifies the firm of a material change in financial situation or investment…
• BAny options position changes value by more than 20%
• CThe customer completes 100 options transactions
• DIt has been exactly 12 months since account opening