NASD SERIES 4

Anyone involved in options trading knows that it is substantially more complex than that of stock. Trading equities is a basic task, quantity and price. There can be a few exotic trade signals, like stop limit or all or none trades, but overall it isn't that difficult.

Now enter option trading. Putting together complex options trade can be very hard, especially if the trade is dependent on the 'greeks' where pricing a trade involves using the underlying stocks value and recent trade history. This would involve the delta, the gamma, and the VIX, the volatility index of the Chicago Board Options Exchange.

Some trades, like a butterfly spread, involve buying and selling four different option contracts. There are buy / writes, where you purchase stock and sell calls, at a proportional rate, say at a 2:1 ratio.

All of this complexity needs people in a supervisory role who know what they are doing. All stock brokers and floor brokers must pass the Series 7 NASD licensing exam to become a registered representative, a broker. Even though these brokers have studied and qualified to be able to trade options, they still do not know enough to be a judge in the events of a discrepancy, a disagreement as to an option trade gone bad or perhaps they would have trouble answering advanced questions from a customer about complex option strategies.

All of these nasty possibilities surrounding option trading are taken care of by an Series 4 NASD licensed options principal. This highly qualified individual not only has passed the basic registered rep testing (by passing the Series 7 examination) but has moved on and passed a much more difficult test, the Series 4. Becoming an options principal is not easy at all, the Series 4 exam contains nothing but questions about potential option problems, advanced trading strategies, arcane SEC rules surrounding the obligations, legal situations involving options, and questions about all the different types of security based options. These include stock options, interest rate options, currency options and index options. All of the different types have their own rules, pricing models, underlying security values and various styles of trading.

An options principal must understand all of these situations and trading formats to pass the Series 4 examination. The Series 4 is administered by a qualified NASD testing office. The NASD, by the way is now going by the term FINRA. But that name change doesn't mean anything to an individual who studies for and passes the Series 4. This is a truly hard exam and those who pass are viewed as experts in the area of option trading.