Securities Trader Representative (Series 57) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Study for the Securities Trader Representative (Series 57) Exam. Learn through multiple choice questions, each with detailed explanations and tips. Get ready to ace your test!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

On the expiration date of the Aug 75 call options, which statement is true regarding the options if XYZ stock closed at $73?

Any investors who are long the calls must notify their broker-dealers whether they want to exercise their options by 5:30 p.m. ET
The calls will all expire because they were out-of-the-money at the close
The options will automatically be exercised because they were in-the-money after hours
Any investors who are long the calls must notify their broker-dealers before the options expire if they intend to exercise their options

The correct answer is: Any investors who are long the calls must notify their broker-dealers whether they want to exercise their options by 5:30 p.m. ET

The correct answer pertains to the responsibilities of investors who hold long call options. On the expiration date, if the stock price is below the strike price of the call options—in this case, XYZ stock closing at $73 while the strike price is $75—the options are considered out-of-the-money. This means that exercising the options would not be beneficial, as the holder would pay more for the stock than its market value. Investors holding these options must make a decision about whether to exercise them before the options expire. If they choose to exercise, they need to communicate this intention to their broker-dealer by a specified time, often set at a cut-off time such as 5:30 p.m. ET. This requirement ensures that brokers have the necessary information to process the exercise in a timely manner. The other statements provided do not accurately reflect the situation regarding options expiration. For instance, since the calls are out-of-the-money, they do not automatically expire in an advantageous position for the holder. Hence, they will not be exercised automatically or require notification in the context of a beneficial exercise. Therefore, the need for long call option investors to notify their brokers of their intentions accurately captures the procedural aspect of managing options around expiration.