General Securities Representative (Series 7) Practice Exam

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What is the maximum amount of a client’s portfolio that should be allocated to options trading according to best practices?

The correct answer is: 15%

Best practices in portfolio management typically suggest that aggressive trading strategies, including options trading, should be limited to a smaller portion of a client's overall investment portfolio. Allocating 15% of a client's portfolio to options trading strikes a balance between potential risk and reward. This allocation allows investors the opportunity to engage in options strategies—such as hedging or speculative plays—while still maintaining a significant portion of their capital in more stable investments. Allocating more than 15% can expose a portfolio to increased volatility and risk, particularly since options can be complex financial products subject to price fluctuations and expiration risks. By keeping the allocation to options trading at this recommended level, investors can participate in the derivatives market without compromising the overall risk profile of their investments.