Answering options questions

When dealing with option questions the key is setting up the question correctly. If you set the question up using our proven methods you will easily answer every question. And best of all, it will be automatic. You will not second guess yourself, overthink it or get something wrong because of a math error. We have been teaching students how to master series 7 options for more than 30 years. Here are some rules to commit to memory right out of our series 7 video lectures. Whenever you have two options take the information off the screen and write it down, one on top of the other. Here is an example with a straddle 

Buy 1 XYZ March 50 call @ 2 

Buy 1 XYZ March 50 put @ 1.5

Master the rules that are always true and commit them to memory. Here are the rules for straddles:

1. Straddles are never bullish nor bearish
2. Something is always unlimited 
3. The net debit is the maximum loss 100 % of the time
4. The net credit is the maximum gain 100 % of the time 
5. SILO - Short Inside Long Outside - This is where the investor wants the stock to be at expiration relative to their breakeven

Commit these rules to memory for Spreads:

1. Nothing is ever unlimited 
2. The net debit is the maximum loss 100 % of the time 
3. The net credit is the maximum gain 100 % of the time
4. With a debit spread the maximum gain is realized if both option exercise 
5. With a credit spread the maximum gain is realized if both options expire
6. Debit spreads are profitable if the difference in premiums (spread) widens
7. Credit spreads profitable if the difference in premiums (spread) narrows
8. Bulls buy lower:Bullish investors always buy the lower strike price 100% of the time. This is true for call spreads and put spreads 

Commit these rules to memory for hedging with options

1. The number at the bottom of the T chart is the breakeven 100% of the time 
2. The difference between the breakeven and the strike price of the long option used to hedge is the maximum loss 100% of the time 
3. The difference between the breakeven and the strike price of the short option used to hedge is the maximum gain 100% of the time 

Always use the T chart. Plug the money into the debit and credit columns and there is no question you will not be able to answer. We have hours of videos in our series 7 training course showing you how to set up every style question step by step. Go over setting up the problems and you will answer every series 7 option question correctly on exam day