FINRA Series 66

Resources

Common stock represents partial ownership in a company, profiting through capital appreciation or cash dividends, as seen with Netflix and McDonald's shares.

A vacation-cost example shows how exchange rates affect foreign investments: a strengthening dollar cheapens purchases but shrinks sale proceeds.

Cash dividends share company profits with shareholders, unlike growth companies that reinvest profits for capital appreciation instead. Larger, established firms past their growth phase, such as Ford, typically pay them.

Works through a practice question contrasting market risk, which hits the whole market and can't be diversified away, with financial, business, and liquidity risk, which hit specific companies and can be.

Walks through a practice question on a callable bond with three call dates and premiums, showing that call protection is simply the earliest date the issuer can call, ignoring the other numbers given.

Bond price swings most with long maturities and low coupons, and stays stable with short maturities and high coupons, shown through a practice question comparing four bonds including a zero-coupon strip.

A practice question decodes a bond quote's coupon and price, then finds current yield by dividing annual interest by market price.

Negotiable securities like stocks and bonds trade between investors at market price with commissions, while redeemable ones like mutual funds trade directly with the issuer at net asset value with sales charges.

A long call quote is broken into its parts, showing how strike price, expiration and premium set the right to buy 100 shares. The call up put down rule splits that premium into intrinsic value and time value.

Selling a call obligates the seller to sell 100 shares at the strike price, while the premium splits into intrinsic and time value via the call up rule.

A long put quote shows the right to sell stock at a strike price, then its premium is split into intrinsic and time value using call up put down.

A short put quote is decoded piece by piece, showing why selling it obligates the seller to buy stock at the strike price. The 'call up, put down' rule splits the premium into intrinsic and time value.

A practice question asks which short-term security lets a company's shareholders buy stock below market price, working through warrants, call options, rights, and convertible preferred stock to find the answer.

Agency trades connect buyers and sellers for a commission, while principal (dealer) trades fill orders from the firm's own inventory with a markup or markdown.

Works through a long-stock-plus-long-put hedge, using a t-chart and the call up put down rule to find maximum gain, maximum loss, breakeven, and profit at given stock prices.

Works through a covered call example, buying stock at 60 and selling a 75 call, to find maximum gain, maximum loss, and breakeven using a T-chart. Shows why the position is a bull-neutral, partial-hedge strategy rather than a pure hedge.

Hedging pairs long stock with a long put, or short stock with a long call, using the option as insurance at the cost of its premium.

Covered calls and covered puts sell an option against a stock position for premium income, yet the stock position can still lose significant money.

Works a convertible preferred stock example to find the conversion ratio, then applies both parity price formulas to judge if converting pays off.

Total return divides dividends, interest, and capital appreciation by the original investment, worked through a question that filters out an irrelevant CPI figure.

Works through a fund investment example to calculate after-tax return, applying tax rates to qualified dividends and a long-term capital gain before dividing by the original basis.

Broker-dealer's legal definition covers soliciting or effecting securities trades for others or one's own account, distinguishing broker and dealer roles.

Agents, issuers, and banks avoid the broker-dealer definition, unlike bank holding companies with a brokerage arm; also institution and vacation rules.

Form BD filings, consent to service of process, and net capital rules outline how a broker-dealer becomes registered, with registration effective but never approved on day 30.

The investment adviser definition breaks into giving advice, doing so as a regular business, and receiving compensation, showing why the firm itself, not its human representatives, counts as the adviser.

Federal covered status is mandatory above $110 million in assets or when advising a registered investment company, with deregistration below $90 million.

Form ADV Part 1 identifies an advisor to regulators, covering structure, custody, assets managed, and legal history, unlike outside business activities disclosed elsewhere.

Form ADV Part 2A's brochure disclosures cover fees, client types, investment philosophy, and conflicts of interest, but not advisor representatives' salaries.

Walks through a real investment advisor brochure section by section, from asset-based fees and non-discretionary accounts to conflicts of interest like recommending securities the advisor owns.

Form ADV Part 2B discloses a representative's education, business history, disciplinary record, and outside or extra compensation creating conflicts of interest.

Walks through a real brochure supplement, showing disclosed designations, outside accounting work as a conflict of interest, and self-supervision.

A 70 call worth $5 when the market hits 75 shows the call up rule, and premium splits into intrinsic plus time value; good for longs, bad for short sellers.

Puts gain intrinsic value as market price falls below strike price (put down), distinct from premium; an example computes the resulting gain or loss.

A market maker's inside quote has customers selling at the bid and buying at the ask, with size capping shares at that price. An example order shows when a request exceeds it.

Market orders guarantee execution at the next available price, not a set price, and always default to a day timeframe, never good-till-cancel.

Buy limit orders execute only at the specified price or lower, trading guaranteed price for uncertain execution, and run as day or GTC orders. A ticker-tape practice question shows how to spot the first price meeting that threshold.

Sell limit orders set a minimum acceptable price, guaranteeing that price but not execution if the market falls instead of rising.

Buy stop orders protect short stock positions, triggering a market order once price hits the stop price or above, with no guaranteed fill price.

A sell stop order triggers once price falls to the stop level, then fills as a market order at the next available price, not a guaranteed one.

Buy stop limit orders combine a stop trigger with a buy limit to cap losses on a short position, using SLOBS vs BLISS to track when the order triggers then executes.

Sell stop limit orders protect a long position, triggering at the stop price then executing only as a limit order at that price or better.

A long straddle pairs a long call and put at the same strike and expiration. It gains from big price moves but risks both premiums if price lands at the strike.

A short call and a short put at the same strike and expiration: it profits if the price stays flat, and the short call leaves the upside risk unlimited.

A short stock and long call hedge is solved with a T-chart for max gain, max loss, and break-even, showing the call caps losses above the strike.

Works a margin account example where a stock rises from 80 to 90, finding equity, equity percentage, and the 25% minimum maintenance level for long accounts.

Equity in a margin account combines long market value minus debit plus credit minus short market value, with a worked example plugging in numbers to find the total.

A short stock position paired with a short put shows how breakeven, max gain, and max loss play out using a T-chart, revealing that max loss stays unlimited despite the strategy's name.

Tax treatment of options covers expiration and closing trades as capital gains or losses, plus how exercising calls and puts sets stock cost basis or sales proceeds by adding or subtracting the premium.

Forward stock splits lower share price without losing value, shown through Apple's 2014 seven-for-one split and the stock split factor calculation.

Reverse stock splits raise a low share price by shrinking share count, shown through a split-factor calculation turning 1000 $4 shares into 100 $40 shares. Because they alter par value, they need shareholder approval.