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← Series 7: Opens & Maintains Customer Accounts
Series 7 practice questionhardOptions Account — Options Levels

A customer with moderate income, limited net worth, and no prior options experience applies to trade uncovered (naked) call options. What is the most likely outcome of the options account approval process?

  1. AThe account will be approved for all levels of options trading since any customer may trade options
  2. BThe ROP will likely deny approval for uncovered options writing due to the high-risk nature relative to the customer's financial profile and experience✓ Correct answer
  3. CThe customer will be automatically approved once the options agreement is signed
  4. DFINRA will intervene and override the firm's decision
Explanation

Why B — The ROP will likely deny approval for uncovered options writing due to the high-risk nature relative to the customer's financial profile and experience

Uncovered (naked) call writing exposes the customer to theoretically unlimited risk. A Registered Options Principal must evaluate the customer's financial situation, investment experience, and stated objectives before approving the appropriate level of options trading. A customer with limited resources and no options experience would typically be denied approval for the highest-risk strategies like naked call writing, though they might be approved for lower-risk strategies such as covered calls or buying options.

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