Welcome to Options, one of the most frequently tested topics in the Products & Risks section of the SIE exam.
Exam Weight: This unit is part of Understanding Products and Their Risks. The full section accounts for 33 scored questions (44% of the exam). The official outline does not assign a separate question count to this unit.
What You'll Learn
- The two fundamental option types and what rights and obligations they create
- How strike price, premium, expiration, and intrinsic value interact
- How to determine if an option is in-the-money, at-the-money, or out-of-the-money
- The difference between physical delivery (equity) and cash settlement (index) options
- When American and European style options can be exercised
- The two primary reasons investors use options: hedging and speculation
- How risk changes dramatically between covered and uncovered option positions
- Breakeven formulas and max gain/loss calculations for each basic position
- How the Options Clearing Corporation handles exercise and assignment
- Regulatory requirements and disclosures for opening options accounts
Why This Matters
Options appear on the SIE exam as both standalone questions and as part of broader investment strategy scenarios. Key areas include who has rights versus obligations, how to determine if an option is in-the-money, and how breakeven points are calculated. The difference between covered and uncovered positions is frequently tested, along with the regulatory requirements around opening options accounts.
Let's start with the building blocks: calls and puts.