General Securities Representative (Series 7) Practice Exam

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What is the multiplier for index options?

The correct answer is: 100

The multiplier for index options is set at 100. This means that each point move in the underlying index translates to a $100 change in the value of the option. For example, if an index option is priced at 10 and the underlying index moves by 1 point, the value of the option would increase or decrease by $100 (10 points x 100). This multiplier distinguishes index options from stock options, where the multiplier is typically 100 as well. Understanding the multiplier is crucial for options traders, as it directly affects the potential profit or loss on their positions. Knowing how this works can help traders manage their risk more effectively and calculate potential payoffs accurately.