Series 7 Securities Exam Prep - Chapter 27

This should be entitled "Taxation and Securities: More fun than a barrel of monkeys"

Amazingly, I only missed two questions and felt good about the material as I was testing. The two ?s were 7 and 14.

The first is a question on short-term capital gains, ie Frank buys a call option, the stock goes up and then then he sells. i correctly computed the amt of the gain, but did not select the "short term" capital gain (which, was the correct answer). and the REASON i did not (I can actually remember this rationalization) was that he had not purchased a put or sold a call. when an investor takes a short position in stock, then the capital loss is always short-term regardless of how long they hold the stock (vs. long-term 12 mos). however, the explanation in the book points out that ALL options are short-term gains or losses. this makes sense, since options contracts are usually 3/6/9 mos.

the second ? was on marrying puts and calls to the stock. even though i had the cost basis of the underlying stock correctly, i failed to "marry" the option that the investor purchased on the same day to it. in doing so, the investor is allowed to attach the premium from the option to the first transaction and add the premium to the cost of the underlying stock, increasing the cost basis. which, i don't think that's fair. you shouldn't get a "bonus" for preparing to exploit...er, take action on the market's upticks or downturns.

These last few chapters seem to drag, I am beginning to tire. Well, actually, I was beginning to tire two weeks ago, but now I am ready to be done. And I still have to read it again! Hopefully, the new book will make life easier.

I don't know if I mentioned it, but it does bear repeating, that many people on Amazon (so credible, i know) said two things about the test. 1) do as many practice tests as you can and 2) know your options and bonds/municipals very well.

I need to finish the material so that i have time to learn the formulas i have talked about, more studying on options and bonds, study glossary of terms, and take practice tests. i'd like about a week to do all of that. we have 26 days left, so that leaves 19 to read the new book.