Series 4 Exam Important Concepts

What is the Option Agreement?

The option agreement is the OCC's (Option Clearing Corporation) full disclosure document and it is titled "the Characteristics and Risks of Standardized Options". All new option accounts must be approved by the registered option and security futures principal prior to the first option trade. An option investor must sign and return the option agreement within 15 days of the account's approval to trade options. If the investor fails to return the option agreement within 15 days, no new option positions may be opened and the investor will be limited to closing transactions only until the option agreement is signed and returned. By signing the option agreement, the customer agrees to notify the firm of any significant change in their finances and the customer:

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What Multiple Option Positions and Strategies will be on the Series 4 exam?

Option strategies that contain positions in more than one option can be used effectively by investors to meet their objective and to profit from movement in the underlying stock price. The Series 4 exam will contain option questions on spreads, hedging and straddles.

What is a Long Straddle?

A long straddle is the simultaneous purchase of a call and a put on the same stock with the same strike price and expiration month. An option investor would purchase a straddle when they expect the stock price to be extremely volatile and to make a significant move in either direction.

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Understanding Supervision

A member firm's public customer option business must be supervised by the firm in accordance with the supervision of its overall public customer business. Registered option and security futures principals (ROSFP) designated by the firm's written supervisory procedures may supervise the member firm's option business. The ROSFP is not required to complete the security futures firm element continuing education requirement and being designated as a ROSFP does not permit the ROSFP to supervise the member's security futures business without satisfying the security futures firm element continuing education program.

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Multiple Option Positions and Strategies

Option strategies that contain positions in more than one option can be used effectively by investors to meet their objective and to profit from movement in the underlying stock price.

Long Straddles

A long straddle is the simultaneous purchase of a call and a put on the same stock with the same strike price and expiration month. An option investor would purchase a straddle when they expect the stock price to be extremely volatile and to make a significant move in either direction. An investor who owns a straddle is neither bullish

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Paperback    312 pages    191 test questions    Published December 2015

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