A client owns 100 shares purchased at $80, buys one 75-strike put for a $2 premium per share, and sells one 90-strike call for $3 per share. All contracts expire together, and commissions are ignored. What are the maximum total profit and maximum total loss on this combined position?

$1,100 maximum gain; $400 maximum loss.

An investor who owns 100 shares of stock and writes 1 covered call against the position is primarily seeking to:

Generate additional income and gain limited downside protection equal to the premium received, while capping upside potential above the strike

Series 7 Options Practice Questions

Official outline: FINRA Series 7 Content Outline
Questions on this page: 8
Updated: Nov 3, 2026

Question 1, easy
What is the maximum potential loss to an investor who purchases (goes long) a put or call option?
- A.Unlimited
- B.The premium paid
- C.The strike price minus the premium paid
- D.The full strike price
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Correct answer: B. The premium paid
The maximum loss for a long option position (call or put) is limited to the premium paid, since the buyer can simply let the option expire worthless if it is not profitable to exercise. Choice A applies to short (uncovered) calls, not long positions. Choices C and D confuse the breakeven or strike price with the actual dollar risk, which is capped at the premium.
- A. Unlimited loss potential describes an option writer (especially an uncovered call writer), not a buyer.
- B. A long option holder can never lose more than what she paid for the contract, since she can simply let it expire worthless.
- C. This isn't a recognized maximum-loss formula for a long option; the loss is capped at the premium regardless of the strike price.
- D. The full strike price is what a put writer might be exposed to on assignment, not the loss ceiling for someone who bought the option.
- Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026
Question 2, hard
A client owns 100 shares purchased at $80, buys one 75-strike put for a $2 premium per share, and sells one 90-strike call for $3 per share. All contracts expire together, and commissions are ignored. What are the maximum total profit and maximum total loss on this combined position?
- A.$1,000 maximum gain; $500 maximum loss.
- B.$1,100 maximum gain; $400 maximum loss.
- C.$1,300 maximum gain; unlimited loss.
- D.$800 maximum gain; $700 maximum loss.
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Correct answer: B. $1,100 maximum gain; $400 maximum loss.
The collar produces a $1 net credit per share. Above $90 the shares gain $10 plus the $1 credit, or $1,100. Below $75 the shares lose $5, less the $1 credit, for a $400 maximum loss.
- A. Uses the strike prices alone and omits the $100 net option credit from both figures.
- B. Maximum gain is $10 + $1 = $11 per share; maximum loss is $5 - $1 = $4 per share.
- C. The purchased put limits the downside, so the loss is not unlimited, and the sold call caps the gain.
- D. Neither figure follows from the $80 cost, the $75 and $90 strikes, and the $1 net credit.
- Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026
Question 3, medium
An investor owns 100 shares bought for $44 and sells one $50 call for $2 per share. At expiration the stock is $57 and the call is assigned. What is the total profit ignoring commissions?
- A.$1,300
- B.$200
- C.$800
- D.$600
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Correct answer: C. $800
The shares are called away at $50 for a $6 gain per share ($600), and the $200 premium is kept, so total profit is $800. Gains above $50 are surrendered.
- A. This counts the stock's full rise to $57 plus the premium; the short call caps the gain at the strike price.
- B. This is only the premium and ignores the $600 gain from the shares being called away at $50.
- C. Strike $50 minus cost $44 is $600, plus the $200 premium, equals $800.
- D. This is the stock gain to the strike but omits the $200 premium collected.
- Source: FINRA Investor Education: Options, accessed October 2026
Question 4, medium
An investor who owns 100 shares of stock and writes 1 covered call against the position is primarily seeking to:
- A.Fully protect the position against unlimited downside risk in the stock, since the premium received offsets losses of any size
- B.Lock in a guaranteed profit on the stock whether its price rises or falls, simply by collecting the premium on the call
- C.Increase leverage and create potential for unlimited gain by participating in appreciation on additional shares beyond the 100 owned, funded by the premium received
- D.Generate additional income and gain limited downside protection equal to the premium received, while capping upside potential above the strike
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Correct answer: D. Generate additional income and gain limited downside protection equal to the premium received, while capping upside potential above the strike
Covered call writing generates income from the premium received and provides limited downside cushion equal to that premium, but it caps the investor's upside because the stock may be called away once it rises above the strike price. It does not eliminate downside risk beyond the premium amount, and it does not guarantee a profit.
- A. Overstated. The premium only offers limited downside protection equal to the amount received, not full protection against losses of any size.
- B. No options strategy guarantees a profit whether the stock rises or falls; the stock can fall by more than the premium, so this overstates the strategy's protective effect.
- C. Covered call writing is a conservative, income-oriented strategy; it does not increase leverage, fund purchases of additional shares, or create unlimited gain potential - in fact it caps gains.
- D. Correct. Covered call writing generates income, offers limited downside cushion, and caps upside potential.
- Source: FINRA Investor Education: Options, accessed October 2026
Question 5, easy
An investor buys 1 XYZ 50 call for a premium of 4. If XYZ stock is trading at $57 at expiration, what is the intrinsic value of the call option?
- A.$3
- B.$4
- C.$7
- D.$0
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Correct answer: C. $7
Intrinsic value of a call option equals the market price of the stock minus the strike price (if positive). Here, $57 − $50 = $7 of intrinsic value. This differs from the investor's net profit, which would subtract the $4 premium paid ($7 − $4 = $3).
- A. $3 is the investor's net profit after subtracting the premium, not the intrinsic value.
- B. $4 is just the premium paid, not the intrinsic value.
- C. Correct: $57 stock price − $50 strike price = $7 intrinsic value.
- D. $0 would apply only if the stock were at or below the strike price (out-of-the-money), which is not the case here.
- Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026
Question 6, medium
A customer buys a $60 call and $60 put on the same stock for combined premiums of $8 per share. What stock prices at expiration are the approximate break-even points?
- A.$48 and $72
- B.$60 and $68
- C.$56 and $64
- D.$52 and $68
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Correct answer: D. $52 and $68
A long straddle breaks even at the strike plus and minus the combined premium: $60 + $8 = $68 and $60 - $8 = $52.
- A. This uses a $12 move, which does not match the $8 combined premium.
- B. This treats the position as a call only and ignores the downside break-even.
- C. This uses half the combined premium on each side.
- D. Strike plus and minus the $8 total premium gives $52 and $68.
- Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026
Question 7, medium
A customer sells one XYZ 55 put for a premium of $3 per share. At expiration, XYZ trades at $45 and the put is assigned. Ignore commissions. What are the customer's break-even stock price and total position profit or loss at expiration?
- A.$55 break-even and $1,000 loss.
- B.$52 break-even and $700 loss.
- C.$58 break-even and $700 profit.
- D.$48 break-even and $300 loss.
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Correct answer: B. $52 break-even and $700 loss.
A short put breaks even at strike minus premium received: $55 - $3 = $52. With the stock at $45 the put is $10 in the money, so the $1,000 loss is offset by the $300 premium for a net $700 loss.
- A. The strike is not the break-even, and a $1,000 loss ignores the $300 premium the seller kept.
- B. Break-even is $55 - $3 = $52; the $1,000 intrinsic loss less the $300 premium is a $700 loss.
- C. Adding the premium to the strike is the long-call break-even; a short put at $45 is a loss, not a profit.
- D. Subtracting the premium from the stock price rather than the strike gives the wrong break-even, and a $300 loss ignores the $10 drop below the strike.
- Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026
Question 8, medium
An investor owns 100 shares of XYZ purchased at $60 and buys one XYZ 60 put for a premium of $3 to hedge the position. What is the investor's breakeven point on this protective put strategy?
- A.$57
- B.$60
- C.$63
- D.$66
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Correct answer: C. $63
For a protective put (long stock plus long put), breakeven equals the stock's purchase price plus the premium paid: $60 + $3 = $63. The stock must rise above this level for the position to show a net profit, since the premium is a cost regardless of stock direction.
- A. Incorrect. Subtracts the premium instead of adding it.
- B. Incorrect. Ignores the premium cost entirely.
- C. Correct.
- D. Incorrect. Overstates the breakeven, e.g., by doubling the premium.
- Source: Exam outline: FINRA Series 7 Content Outline, accessed October 2026

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FINRA Investor Education: Options, checked October 2026

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