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Official Practice ProblemFINRA Series 7 Blueprint: Function 3
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Question #s7-prep2-s7-q-243Function 3Fundamental

Call Options

Upon expiration, in-the-money S&P 100 Index call options are settled by:

Correct Choice: A

Index options = cash settlement. Equity options = physical delivery (100 shares).

Complete Analysis & Legal Rationale

Index options are cash-settled because delivering all the underlying stocks would be impractical. The holder receives the cash difference between the index level and the strike price.

Distractor Autopsy (Why Other Options Are Traps)

FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:

Choice ACorrect
None

Matches the verified teaching point in the explanation.

Choice BIncorrect
Concept Trap

Delivering 100 different stocks is impractical; cash settlement is used.

Choice CIncorrect
Concept Trap

ETF shares are not used for settlement of index options.

Choice DIncorrect
Concept Trap

Put options are not used to settle call options.

Authorities & References:

Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.

Official SourceFINRA FINRA Series 7 Content Outline — General Securities Representative Examination (Series 7) Content Outline
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Regulatory Authority & Citations: Primary Legal Sources

Verified citations governing Question #s7-prep2-s7-q-243 (FINRA Series 7 Content Outline)

To pass the FINRA Series 7, candidates must understand not just the calculation formulas, but the exact federal securities acts, SRO rulebooks, and statutory frameworks that enforce them. Review the primary authority records below:

FINRAFINRA Series 7 Content Outline— General Securities Representative Examination (Series 7) Content Outline

Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.

Read FINRA Official Rule

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