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SIE options practice questions

Free SIE exam questions on options: calls and puts, buyer rights and writer obligations, intrinsic value, breakeven, maximum gain and loss, covered calls, protective puts and the OCC, each with the answer and a rationale.

Tap an answer to check it, or open "Show the answer and rationale" under each question. Customers in the questions are fictional. Exam practice only, not investment advice.

Question 1 of 20

Which position obligates the investor to sell stock at the strike price if assigned?

  1. Long put
  2. Long call
  3. Short put
  4. Short call
Show the answer and rationale

Answer: D

A call writer (short call) must deliver shares at the strike if assigned. A short put obligates the writer to BUY; long positions carry rights, not obligations.

📚 Learn it: Calls Up, Puts Down: Who Has the Right?

Question 2 of 20

Stock at 21. What is the intrinsic value of a 25 put?

  1. 25
  2. 4
  3. 0
  4. 21
Show the answer and rationale

Answer: B

Put intrinsic value = strike − market = 25 − 21 = 4. The put is in the money because the market is below the strike. 21 and 25 are just the market and strike prices.

📚 Learn it: What a Premium Is Made Of

Question 3 of 20

A customer bought 1 call with a 45 strike at 3. The stock rises to 52, and the customer exercises and sells the shares at 52 the same day. Ignoring costs, what is the result?

  1. $700 gain
  2. $300 loss
  3. $1,000 gain
  4. $400 gain
Show the answer and rationale

Answer: D

Buy at 45, sell at 52 = 7 points, minus the 3-point premium = 4 points × 100 = $400 gain. Equivalently, 52 is 4 points above the 48 breakeven. $700 forgets the premium paid.

📚 Learn it: Breakeven, Max Gain and Max Loss

Question 4 of 20

Compared with owning the stock alone, how does a covered call change the investor's downside?

  1. It makes the downside unlimited
  2. It lowers the breakeven by the premium
  3. It removes all downside risk
  4. It raises the breakeven price
Show the answer and rationale

Answer: B

The premium kept lowers the breakeven to stock cost − premium, a small cushion. It does not remove the risk of a large decline, and owning the shares means the call writer's risk is not unlimited.

📚 Learn it: Protective Puts and Covered Calls

Question 5 of 20

Which statement about a European-style option is accurate?

  1. It can be traded before expiration
  2. It cannot be sold before it expires
  3. It can be exercised any business day
  4. It always settles by delivering shares
Show the answer and rationale

Answer: A

European style limits only EXERCISE to expiration; the holder can still sell the option in the market before then. Exercise on any day describes American style, and many European-style index options settle in cash.

📚 Learn it: Exercise, Expiration and the OCC

Question 6 of 20

Under Rule 2360, how must a principal record approval of a customer's account for options trading?

  1. By phone call to the customer
  2. By a note on the trade ticket
  3. By email to OCC
  4. In writing
Show the answer and rationale

Answer: D

The rule requires the qualified principal to specifically approve or disapprove the account in writing. A phone call or a ticket note is not the required record, and OCC plays no role in approving accounts.

📚 Learn it: Opening an Options Account: ODD, Approval, Agreement

Question 7 of 20

Which statement about the option buyer is accurate?

  1. The buyer decides whether to exercise
  2. The buyer must act if the writer requests it
  3. The buyer receives the premium at the open
  4. The buyer is assigned by the OCC at random
Show the answer and rationale

Answer: A

Only the holder chooses whether to exercise; the writer must perform if assigned. Writers, not buyers, receive premiums and receive assignment notices.

📚 Learn it: Calls Up, Puts Down: Who Has the Right?

Question 8 of 20

A call with a 40 strike is 3 points in the money. Where is the stock trading?

  1. 37
  2. 43
  3. 40
  4. 46
Show the answer and rationale

Answer: B

A call is in the money by market − strike, so 43 − 40 = 3. 37 would make a 40 PUT 3 points in the money, and the call out of the money.

📚 Learn it: What a Premium Is Made Of

Question 9 of 20

A customer buys 1 call with a 60 strike at 4. What is the maximum loss?

  1. $6,400
  2. Unlimited
  3. $400
  4. $5,600
Show the answer and rationale

Answer: C

A buyer can lose no more than the premium paid: 4 × 100 = $400, if the call expires out of the money. Unlimited loss belongs to the uncovered call WRITER, not the buyer.

📚 Learn it: Breakeven, Max Gain and Max Loss

Question 10 of 20

An investor sells short 100 shares at 50 and buys 1 call with a 55 strike at 2. What is the maximum loss?

  1. $200
  2. $700
  3. Unlimited
  4. $500
Show the answer and rationale

Answer: B

The call caps the buy-back price at 55: a 5-point loss on the short stock plus the 2-point premium = 7 × 100 = $700. Without the call, a short seller's loss would be unlimited.

📚 Learn it: Protective Puts and Covered Calls

Practice 10 more options questions free →

A timed or tutor-mode set in the app, scored by SIE section, with every miss saved for review. Free, no sign-up needed.

Question 11 of 20

How does the Options Clearing Corporation guarantee listed option contracts?

  1. It sets each option's premium
  2. It approves each customer account
  3. It insures each customer account
  4. It is buyer to every seller and seller to every buyer
Show the answer and rationale

Answer: D

OCC becomes the counterparty to both sides of every listed option, so holders rely on OCC rather than on the individual writer. It does not set premiums (the market does), approve customer accounts (firms do) or act as account insurance.

📚 Learn it: Exercise, Expiration and the OCC

Question 12 of 20

Which fact is among those a firm must seek about an individual before approving an options account?

  1. The customer's investment experience
  2. The customer's political views
  3. The customer's home appraisal
  4. The customer's credit card limits
Show the answer and rationale

Answer: A

Rule 2360 lists minimum facts such as investment objectives, employment status, income, net worth, age and investment experience. Political views, card limits and home appraisals are not on the list.

📚 Learn it: Opening an Options Account: ODD, Approval, Agreement

Question 13 of 20

An investor expects a stock's price to fall sharply. Which single option position matches that view while risking only the premium?

  1. Buying a call
  2. Buying a put
  3. Writing a call
  4. Writing a put
Show the answer and rationale

Answer: B

A long put gains as the price falls, and the most the buyer can lose is the premium paid. Writing a call is also bearish, but an uncovered call writer faces unlimited risk, not just the premium.

📚 Learn it: Calls Up, Puts Down: Who Has the Right?

Question 14 of 20

Stock at 72. What is the intrinsic value of a 75 call?

  1. 75
  2. 3
  3. -3
  4. 0
Show the answer and rationale

Answer: D

The market is below the strike, so the call is out of the money and its intrinsic value is zero. Intrinsic value is never negative, so -3 is not possible.

📚 Learn it: What a Premium Is Made Of

Question 15 of 20

A customer bought 1 put with a 70 strike at 4. At expiration the stock is 68. What is the result if the put is closed at its intrinsic value?

  1. $600 gain
  2. $200 loss
  3. $200 gain
  4. $400 loss
Show the answer and rationale

Answer: B

At expiration the put is worth its intrinsic value: 70 − 68 = 2. The customer paid 4, so the result is 2 − 4 = −2 × 100 = −$200. In the money is not the same as profitable: the breakeven is 66.

📚 Learn it: Breakeven, Max Gain and Max Loss

Question 16 of 20

What is the main reason an investor writes covered calls on stock already owned?

  1. To gain unlimited upside
  2. To earn premium income
  3. To fully hedge a decline
  4. To lower margin interest
Show the answer and rationale

Answer: B

Writing covered calls brings in premium income. The trade-off is a cap on upside at the strike, and the premium offers only a partial cushion against a decline, not a full hedge.

📚 Learn it: Protective Puts and Covered Calls

Question 17 of 20

Cboe's SPX options on the S&P 500 index use which exercise style and settlement?

  1. European style, settled in cash
  2. European style, settled in shares
  3. American style, settled in shares
  4. American style, settled in cash
Show the answer and rationale

Answer: A

Cboe describes SPX options as European-exercise and cash-settled: they can be exercised only at expiration, and the in-the-money amount is paid in cash. Index options are not settled by delivering shares.

📚 Learn it: Exercise, Expiration and the OCC

Question 18 of 20

A rep has finished a new options account form. What must happen before the customer's first option order is accepted?

  1. The exchange must register the customer
  2. The OCC must clear the customer
  3. A qualified principal approves in writing
  4. The customer must sign the agreement
Show the answer and rationale

Answer: C

Rule 2360 requires a qualified principal, such as a Registered Options Principal, to approve the account in writing before an order is accepted. The signed agreement may follow within 15 days; OCC and exchanges do not approve customers.

📚 Learn it: Opening an Options Account: ODD, Approval, Agreement

Question 19 of 20

Which two positions share the same market outlook?

  1. Long call and long put
  2. Short call and short put
  3. Long put and short put
  4. Long call and short put
Show the answer and rationale

Answer: D

Long calls and short puts are both bullish: each benefits if the stock rises or holds up. Long call vs long put and short call vs short put are opposite views; long put vs short put are opposite sides of one contract.

📚 Learn it: Calls Up, Puts Down: Who Has the Right?

Question 20 of 20

Stock at 64. Which option is out of the money?

  1. A 70 put
  2. A 65 call
  3. A 65 put
  4. A 60 call
Show the answer and rationale

Answer: B

A 65 call is out of the money because the market (64) is below the strike. The 60 call and both puts with strikes above 64 are in the money.

📚 Learn it: What a Premium Is Made Of

Practice 10 more options questions free →

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