Securities Trader Representative (Series 57) Practice Exam

The correct answer pertains to the responsibilities of investors who hold long call options. On the expiration date, if the stock price is below the strike price of the call options—in this case, XYZ stock closing at $73 while the strike price is $75—the options are considered out-of-the-money. This means that exercising the options would not be beneficial, as the holder would pay more for the stock than its market value.

Investors holding these options must make a decision about whether to exercise them before the options expire. If they choose to exercise, they need to communicate this intention to their broker-dealer by a specified time, often set at a cut-off time such as 5:30 p.m. ET. This requirement ensures that brokers have the necessary information to process the exercise in a timely manner.

The other statements provided do not accurately reflect the situation regarding options expiration. For instance, since the calls are out-of-the-money, they do not automatically expire in an advantageous position for the holder. Hence, they will not be exercised automatically or require notification in the context of a beneficial exercise. Therefore, the need for long call option investors to notify their brokers of their intentions accurately captures the procedural aspect of managing options around expiration.