Options Test - Calls and Puts Options Exam for Series 7

The following are sample option questions with answers for the Series 7 exam. Calls and Puts are 2 types of options. The Series 7 will ask many different types of questions on options


A customer sells 100 shares of GHT short at $58 and buys 1 GHT Mar 60 Call @3. What is the customer’s maximum loss?

A) $500
B) $100
C) Unlimited
D) $5500

Correct answer is A: The customer sold short at $58. The call with a strike price of 60, gives this person the right to buy back the stock at $60. If the stock rises, the call can be used to limit the loss to 2 points. The customer can lose $200 on the stock. The customer also paid a $300 premium. Loss potential is $500.

Long term options to buy a security at a specific price, are known as:

A) ADR’s
B) Warrants
C) Index options
D) BA’s


Correct answer is B: Warrants are long term option to buy a security at a specific price. Expirations can be 5 years or longer.


A customer buys 100 shares of GTR at $36, and buys 1 GTR MAR 35 Put @4. What is the customer’s maximum loss?

A) $4000
B) Unlimited
C) $3200
D) $500

Correct answer is D: The customer owns the stock at $36. The Put allows the stock to be sold at the strike price (35), which limits the loss on the stock to $100. The customer also a paid a $400 premium, so the maximum loss is $500.


A customer owns 200 shares of GHY at $90, and wishes to hedge the position while generating income. What is the best recommendation?


A) Sell calls
B) Sell puts
C) Buy calls
D) Buy puts

Correct answer is A: Selling options will create income. The customer should sell calls. Calls are covered by the underlying stock. If the calls were exercised, the stock would be delivered to meet the obligation. The income also reduces the break-even of the stock.

If Pete Tulip purchased 2 FER Sep 30 calls at 3, what would be Pete’s breakeven and maximum gain for this transaction?

A. $33 per share and a maximum gain of $600
B. $30 per share and a maximum gain of $3,000
C. $27 per share and a maximum gain of $3,300
D. $33 per share and a maximum gain that is unlimited


Correct answer is D: The maximum gain is unlimited. The calls allow the customer to purchase the stock at $30. Since the market can rise infinitely, the gain potential is unlimited. The breakeven for this is 33. The market must rise 3 points, to make up for the 3 point premium spent.

Mr. Giles buys 1 WRD SEP 80 Call@5 and also shorts 1 WRD SEP 90 Call@2. What strategy is this?

A) Spread
B) Long straddle
C) Short straddle
D) Combination

Correct answer is A: Buying and selling the same type of options (calls or puts), is a spread. A long straddle is when you buy a call and buy a put. A short straddle is when you sell a call and a put. A combination is a straddle that has different expiration months or different strike prices. This is a call spread.

Become a Stockbroker

Series 7 Online Web Course