Chapter 6: Options
This chapter is part of Function 3 (73% of the exam) and provides comprehensive coverage of options, from fundamentals through advanced multi-leg strategies and taxation.
What You'll Learn
| Unit | Topic | Key Concepts |
|---|---|---|
| 21 | Options Fundamentals | Calls, puts, intrinsic/time value, OCC, options disclosure, account approval |
| 22 | Basic Options Strategies | Long/short calls and puts, covered calls, protective puts, max gain/loss/breakeven |
| 23 | Advanced Options Strategies | Spreads (bull/bear, debit/credit), straddles, combinations, index options |
| 24 | Options Taxation and Calculations | Premium treatment, exercise adjustments, cost basis, holding periods, index settlement |
Why This Chapter Matters
Options are one of the most heavily tested areas on the Series 7. The exam requires you to calculate maximum gain, maximum loss, and breakeven for single-leg and multi-leg positions. You must also understand when to use each strategy based on market outlook and be able to determine the tax consequences of options transactions.
Exam Strategy
Options questions are calculation-heavy. Focus on:
- Max gain/loss/breakeven: Know the formulas for every basic position (long call, short put, etc.)
- Spreads: Identify debit vs. credit, bull vs. bear, and calculate net premium
- Straddles: When to use long vs. short straddles, breakeven calculations
- Covered calls: The most common "suitable" options strategy for income-oriented investors
- Tax treatment: What happens to premiums when options expire, are exercised, or are closed