Series 7 options practice questions, worked step by step
Options questions on the Series 7 mostly ask for one of three numbers, the breakeven, the maximum gain or the maximum loss, for a single option, a stock-and-option position, a spread or a straddle. They sit in Function 3, which carries 91 of the 125 scored questions. Below are the rules for each position and five worked examples, and the free Function 3 drill and full mock include generated options questions with new numbers every time.
- 3
- numbers to find
- 100
- shares per contract
- 5
- worked examples here
- Free
- drill and mock
Last checked · Options questions sit in Function 3 of FINRA's Series 7 content outline
Free Function 3 drill (includes options): 12 original Series 7-style questions at the real pace, then every answer explained. No sign-up.
12
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20:44
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Free
every answer explained
By the LifeScore Editorial Team · Updated · How we check facts · How this is scored
How do you find the breakeven on a Series 7 options question?
For a call, add the premium to the strike; for a put, subtract it. That is true whether the investor bought or sold the option.
The four basic positions (one contract = 100 shares)
Buy a call
- Market view
- Bullish
- Breakeven
- Strike + premium
- Maximum gain
- Unlimited
- Maximum loss
- Premium
Sell (write) an uncovered call
- Market view
- Bearish or neutral
- Breakeven
- Strike + premium
- Maximum gain
- Premium
- Maximum loss
- Unlimited
Buy a put
- Market view
- Bearish
- Breakeven
- Strike − premium
- Maximum gain
- Strike − premium (stock to zero)
- Maximum loss
- Premium
Sell (write) an uncovered put
- Market view
- Bullish or neutral
- Breakeven
- Strike − premium
- Maximum gain
- Premium
- Maximum loss
- Strike − premium (stock to zero)
Series 7-style question 1 · Long put
An investor buys 1 ABC Mar 60 put at 4. What is the breakeven point?
- A56
- B60
- C64
- D4
Worked answer
A: 56. A put buyer profits when the stock falls, so the breakeven is the strike minus the premium: 60 − 4 = 56.
- A put is the right to sell at the strike, 60.
- The buyer paid 4, which must be recovered as the stock falls.
- Breakeven: 60 − 4 = 56.
The trap: Adding the premium (64). That is the breakeven for a call; puts subtract.
The buyer and the seller of the same option share a breakeven: whatever one gains, the other loses. Multiply by 100 for dollar answers, and check whether the question asks per share or per contract.
How do covered calls and protective puts work on the Series 7?
A covered call (long stock, short call) earns the premium but caps the gain at the strike. A protective put (long stock, long put) costs the premium but limits the loss at the strike. In both, the breakeven is the stock price adjusted by the premium.
| Position | Breakeven | Maximum gain | Maximum loss |
|---|---|---|---|
| Long stock + short call (covered call) | Stock price − premium | Strike − stock price + premium | Stock price − premium |
| Long stock + long put (protective put) | Stock price + premium | Unlimited | Stock price − strike + premium |
| Short stock + long call (hedged short) | Short price − premium | Short price − premium | Strike − short price + premium |
Series 7-style question 2 · Covered call
An investor buys 100 shares of XYZ at 52 and sells 1 XYZ Jun 55 call at 3. What is the maximum potential gain?
- A$300
- B$600
- C$900
- DUnlimited
Worked answer
B: $600. If the stock rises above 55 the shares are called away at 55. The gain is the rise to the strike plus the premium: (55 − 52 + 3) × 100 = $600.
- Above 55 the call is exercised and the shares are sold at 55.
- Stock gain: 55 − 52 = 3 points. Premium kept: 3 points.
- 6 points × 100 shares = $600.
The trap: Answering "Unlimited" because the investor owns stock. Selling the call caps the upside at the strike.
Series 7-style question 3 · Protective put
An investor buys 100 shares of QRS at 70 and buys 1 QRS Apr 65 put at 2. What is the maximum potential loss?
- A$200
- B$500
- C$700
- D$6,700
Show the worked answer
C: $700. The put lets the investor sell at 65 however far the stock falls. The loss is the drop to the strike plus the premium: (70 − 65 + 2) × 100 = $700.
- Worst case: the stock falls and the shares are sold at 65 through the put.
- Stock loss: 70 − 65 = 5 points. Premium paid: 2 points.
- 7 points × 100 shares = $700.
The trap: Forgetting the premium ($500). What you pay for protection is part of the loss.
How do you work a Series 7 spread question?
Find the net premium first: paid more than received is a debit spread, received more is a credit. Calls break even at the lower strike plus the net premium, puts at the higher strike minus it.
- Debit spread: maximum loss is the net debit; maximum gain is the difference between the strikes less the net debit.
- Credit spread: maximum gain is the net credit; maximum loss is the difference between the strikes less the net credit.
- Bull spreads buy the lower strike call (debit) or sell the higher strike put (credit); bear spreads do the reverse.
- A debit spread wants the premiums to widen, so the buyer wants exercise; a credit spread wants both options to expire.
Series 7-style question 4 · Debit spread
An investor buys 1 DEF Sep 40 call at 5 and sells 1 DEF Sep 45 call at 2. What is the breakeven point?
- A42
- B43
- C47
- D48
Worked answer
B: 43. This is a bull call spread with a net debit of 5 − 2 = 3. A call spread breaks even at the lower strike plus the net debit: 40 + 3 = 43.
- Net premium: paid 5, received 2, a net debit of 3.
- It is a call spread, so add the net premium to the lower strike.
- 40 + 3 = 43.
The trap: Using the higher strike (45 − 3 = 42, or 45 + 3 = 48). For calls, start from the lower strike.
New options numbers in every mock
Options questions in the Pass Pack are generated with fresh strikes and premiums, so you practise the method, not the answer.
The Series 7 Pass Pack gives you 5 full mocks on the real clock, 16 drills of 12 questions for the sections that cost you points, and a predictor that turns your mocks into the odds of reaching your target. One payment, no subscription, and your free score stays free.
Prep courses for these tests usually cost $19 to $129. The Series 7 Pass Pack is US$39 (£29), once.
- 5
- timed mocks
- 16
- topic drills
- 1
- score predictor
How do straddles work on the Series 7?
A straddle is a call and a put on the same stock with the same strike and expiration. Add the two premiums: the breakevens are the strike plus and minus that total.
A long straddle (buy both) profits from a big move either way, and its maximum loss is the total premium. A short straddle (sell both) profits if the stock stays between the breakevens, and its risk is unlimited on the upside. Combinations use different strikes and need each side worked separately.
Series 7-style question 5 · Short straddle
An investor sells 1 LMN Dec 50 call at 3 and sells 1 LMN Dec 50 put at 2. What are the breakeven points?
- A45 and 55
- B47 and 52
- C48 and 53
- D50 only
Worked answer
A: 45 and 55. A straddle has two breakevens: the strike plus and minus the total premium. 3 + 2 = 5, so 50 − 5 = 45 and 50 + 5 = 55. Between them the seller profits.
- Total premium: 3 + 2 = 5.
- Upside breakeven: 50 + 5 = 55.
- Downside breakeven: 50 − 5 = 45.
The trap: Applying each premium to its own side (53 and 48). A straddle uses the combined premium on both sides.
Which options rules are on the Series 7?
Opening an options account (the options disclosure document, approval by a principal and the signed agreement within 15 days), position and exercise limits, and the facts of standardised equity options.
Listed equity options are issued and cleared by the Options Clearing Corporation, which stands on the other side of every contract, and are American style, so they can be exercised at any time before expiration. Exercise settles the stock regular way, T+1. A customer must receive the options disclosure document no later than when the account is approved for options trading, and must return a signed options agreement within 15 days of approval.
Know the vocabulary that questions lean on: in the money, at the money and out of the money; intrinsic value and time value (premium minus intrinsic value); opening and closing purchases and sales. Options rules for opening accounts appear in Function 2, and those for recommendations in Function 3, alongside the other products on the Function 3 page.
What is the fastest way to answer Series 7 options questions?
Write a two-column table, money out and money in, then apply the rule for what the question asks. Most mistakes come from using the wrong strike or forgetting the premium.
- Write down each leg: buy or sell, call or put, strike, premium.
- Net the premiums: are you paying (debit) or receiving (credit)?
- For the breakeven, start from the right price: the strike for a single option, the stock price when stock is involved, the lower call strike or higher put strike for a spread.
- For gain and loss, ask what happens if the stock goes to zero and if it rises without limit.
- Multiply by 100 and by the number of contracts.
Then test the method under time pressure: the free Series 7 practice test has generated options questions with new numbers, and how to pass the Series 7 puts options in a full study plan.
Frequently asked questions
How many options questions are on the Series 7?
Do I need to know options pricing models?
Are index options on the Series 7?
Can I use a calculator for options?
Make options automatic
Five full Series 7-style mocks and four Function 3 drills, with options questions generated new each time.
The Series 7 Pass Pack gives you 5 full mocks on the real clock, 16 drills of 12 questions for the sections that cost you points, and a predictor that turns your mocks into the odds of reaching your target. One payment, no subscription, and your free score stays free.
Prep courses for these tests usually cost $19 to $129. The Series 7 Pass Pack is US$39 (£29), once.
- 5
- timed mocks
- 16
- topic drills
- 1
- score predictor