When a registered representative opens a new options account for a client ...

By Investopedia Staff AAA
Q:
When a registered representative opens a new options account for a client, the account must be approved by a Registered Options Principal (ROP) prior to any options positions being opened. Which of the following strategies, that the customer may initiate, would entail the greatest scrutiny of the account by the ROP?

a) Writing uncovered calls
b) Establishing bear put spreads
c) Opening long combinations
d) Establishing debit call spreads

A:

The correct answer is a.
The riskiest of all options positions is writing uncovered—or naked—calls, because the writer is subject to unlimited losses. The ROP who approves this strategy would only do so after extensive scrutiny of the client’s financial condition and ability to withstand the risk. All the other choices are positions in which the most that the investor can lose is the premium invested.


RELATED FAQS

  1. In the beginning of this year, the total par value of all CCC-rated bonds were $12 ...

    The correct answer is: d) (i) Default Loss Rate = [($1.3 billion - $625 million)/$1.3 billion] = 51.9% (ii) Dollar Default ...
  2. A manager wishes to construct a portfolio by investing 25% in a stock half as volatile ...

    The correct answer is: b) Step 1. Find Portfolio Beta Beta of the Portfolio = (.25)(.5)+(.25)(2)+(.25)(1)+(.25)(0) = 0.125 ...
  3. Which of the following statements least accurately describes the ways in which a ...

    The correct answer is: a) If the winning party simply terminates the swap, then he'll get zero for it. If a swap has value, ...
  4. Which of the following statements is (are) true with respect to the coefficient ...

    The correct answer is: c) (I) is incorrect because coefficient of determination will always be positive, whereas correlation ...
RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

You May Also Like

Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 ...

  2. Retirement

    6 Proven Tips For Series 6 Success

  3. Insurance

    Tips For Passing The Series 6 Exam

  4. Professionals

    Banker Or Broker: Which Career Is Right ...

  5. Professionals

    Breaking Down Financial Securities Licenses

Trading Center