BE CAREFUL WITH OPTIONS QUESTIONS ON THE SIE EXAM!

Plan on taking the SIE Exam? Watch out for questions dealing with Options, such as what is the maximum profit, maximum loss, and breakeven point on an options position.

Consider James, a customer who believes in writing covered calls. Writing covered calls means that James buys or owns 100 XYZ shares at 48, and then writes one call XYZ June 50 for a premium of 6. James has established a position of writing a covered call on XYZ shares.

A typical question that you may see is what is the maximum profit on James' position?

To answer this question correctly, you need to apply the formula for Writing Covered Calls: Maximum Profit equals the strike price minus the stock cost plus the premium received. Or, 50 minus 48 plus 6. This equals 8 points, or $800, which is the maximum profit on this position.

Here's another possible question on Writing Covered Calls.

Consider Harriet who purchases 100 ABC shares for 52 1/2, and writes 1 call ABC July 50 for 7. What is the maximum profit on this position?

Apply the formula for maximum profit when writing covered calls: strike price minus stock cost plus the premium received. So, 50 (the strike price of the call) minus 52 1/2 (the stock cost) plus 7 (the premium). So, 50 minus 52 1/2 plus 7. That equals 4 1/2, or $450, which is the maximum profit.

FINRA publishes a Content Outline for the SIE Exam, and you can find the provisions of Options in Section 2.1.3.  You should expect questions about Options on the SIE Exam. 

Bob Eder covers Options Maximum Profit, Maximum Loss, and Breakeven Point in his Study for the Securities Industry Essentials (SIE) Exam.

Here is the link to FINRA's Content Outline for the SIE Exam dated 2024. Bob Eder's Study for the SIE Exam closely follows FINRA's Content Outline so that you don't waste time in studying material not required by the SIE Exam.

Study for the Securities Industry Essentials (SIE) Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Study for the Securities Industry Essentials (SIE) Exam, or questions in general about Options, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.

P.S. Please consider posting a written review of Bob Eder's Study for the SIE Exam on Amazon and/or Goodreads. We value your opinion!

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