Options
Series 7 Options Cheat Sheet - Calls, Puts, Spreads, Straddles
Start with premium direction
Most options mistakes start before the formula. A long option pays premium. A short option collects premium. Once premium direction is wrong, max gain, max loss, and breakeven all drift.
Core single-option chart
- Long call. Bullish. Max loss is premium paid. Max gain is unlimited. Breakeven is strike plus premium.
- Short call. Neutral to bearish. Max gain is premium received. Max loss is unlimited. Breakeven is strike plus premium.
- Long put. Bearish. Max loss is premium paid. Max gain is significant if the stock falls toward zero. Breakeven is strike minus premium.
- Short put. Neutral to bullish. Max gain is premium received. Max loss is significant if the stock falls toward zero. Breakeven is strike minus premium.
Spreads and straddles
- Debit spread. Customer pays net premium. Max loss is the debit. Max gain is spread width minus debit.
- Credit spread. Customer receives net premium. Max gain is the credit. Max loss is spread width minus credit.
- Long straddle. Buy call and put with same strike and expiration. The customer wants movement. Max loss is total premiums paid.
- Short straddle. Sell call and put with same strike and expiration. The customer wants stability. Risk can be unlimited on the call side.
Four-step exam method
- Name the position. Long call, short call, long put, short put, spread, straddle, hedge, or income strategy.
- Net the premium. Debit means paid out. Credit means received in.
- Apply the formula. Use strike plus premium for calls, strike minus premium for puts, and spread width for spreads.
- Check suitability. Ask what the customer wants: income, hedge, growth, downside protection, volatility, or stability.
Common traps
The exam can make the formula look familiar while changing the customer objective. A covered call is not just call math; it is income from an existing stock position with capped upside. A protective put is not just put math; it is insurance on owned stock. A naked short call is not a conservative income tool because the upside loss is unlimited.
Frequently asked
What options formulas should I memorize first?
Memorize the four single-option positions first. Spreads, straddles, covered calls, and protective puts are combinations of those foundations.
Do I need an options chart for every question?
No. A chart helps when learning, but under exam time the faster method is position, net premium, formula, suitability check.
What is the biggest options trap on the Series 7?
Using a correct formula for the wrong position or wrong customer objective. Name the position before doing the math.