What Is the Series 4?

The Series 4 is an exam and securities license entitling the holder to supervise options sales personnel and compliance issues. It covers topics such as options strategies, foreign exchange options and taxation. Before taking the Series 4 Exam, a candidate must have a Series 7 license.

Key Takeaways

  • The Series 4 exam grants license to those who pass to supervise options sales and trading personnel.
  • The test is sponsored by FINRA and covers both substantive knowledge about options trading as well as topics on compliance and ethics.
  • A Series 4 will often be taken only after an individual has already passed the Series 6 or 7 exams.

Understanding the Series 4

The Series 4 Exam, also known as the Registered Options Principal Qualification Examination (OP), is administered by the Financial Industry Regulatory Authority (FINRA). It "assesses the competency of an entry-level options principal candidate to perform his or her job as a registered options principal," according to FINRA. More pertinently, it focuses on "the rules and statutory provisions applicable to the supervisory management of a firm’s options personnel, accounts and trading, as well as exchange rules and regulations applicable to the trading of options contracts."

Covered supervisory activities under the Series 4 include market making, underwriting, regulatory compliance over trading, and advertising of:

  • Equity options
  • Foreign currency options
  • Interest rate options
  • Index options
  • Options on government and mortgage-backed securities

Series 4 Exam Structure and Content

The Series 4 Exam is conducted by computer. A tutorial on how to take the exam by computer provided before the exam. Candidates aren't allowed any reference material, but are given scratch paper and basic electronic calculators (some of the exam's questions may involve calculations).

The Exam consists of 135 multiple-choice questions (10 of which are unscored and randomly distributed throughout the test) in six content areas:

  • Job Function 1: Supervise the Opening of New Accounts (21 questions)
  • Job Function 2: Supervise Options Account Activities (25 questions)
  • Job Function 3: Supervise General Options Trading (30 questions)
  • Job Function 4: Supervise Options Communications (9 questions)
  • Job Function 5: Implement Practices and Adhere to Regulatory Requirements (12 questions)
  • Job Function 6: Supervise Associated Persons and Personnel Management Activities (28 questions)

Series 4 candidates have three hours and 15 minutes to complete the test. A score of 72% is required to pass. There is no penalty for guessing so a candidate should answer every question. For more information on the test, see FINRA's Registered Options Principal Qualification Examination (OP) Series 4 Content Outline.

Series 4 Sample Questions

These examples, provided by FINRA, represent common question types and subject matter. An asterisk denotes the correct answer.

Example 1: With a broad-based index at 266, a customer writes 1 Feb 270 index call at 2.75, writes 1 Feb 260 put at 2.25, buys 1 Feb 275 call at 1.25 and buys 1 Feb 255 put at 1. What is the maximum potential profit in this position?

(A) $225

(B) $275*

(C) $500

(D) $725

Example 2: A put is considered out-of-the-money when the market price of the underlying security is:

(A) equal to or higher than the strike price.*

(B) lower than the strike price.

(C) lower than the strike price less the premium.

(D) higher than the strike price less the premium.

Example 3: Listed equity options would not be adjusted for which of the following actions in the underlying security?

(A) A 2-for-1 stock split

(B) A 1-for-5 reverse stock split

(C) A stock dividend of 5%

(D) A cash dividend of $0.50*