Common Mistakes

Forgetting to Multiply by 100

Calculating option profit/loss using the quoted premium without multiplying by 100.

Confusing Buyer vs. Seller Breakeven

Thinking buyers and sellers have different breakeven points.

Both buyer and seller have the SAME breakeven point—it's the profit/loss that's different.

Getting Spread Direction Backwards

Calling a bull spread a bear spread (or vice versa).

Bull spreads: Want market to rise. Buy lower strike, sell higher strike (calls) OR sell higher strike, buy lower strike (puts)

Bear spreads: Want market to fall. Buy higher strike, sell lower strike (calls) OR sell lower strike, buy higher strike (puts)

Max Loss on Naked Short Calls

Saying max loss is "the stock price minus premium received"

Max loss on uncovered short calls is UNLIMITED because the stock can rise indefinitely.

Using Wrong Maintenance Percentages

Using 25% for both long and short positions.

LONG positions: 25% maintenance
SHORT positions: 30% maintenance

SMA Calculation Errors

Thinking SMA is just excess equity.

SMA only increases when equity exceeds Reg T requirement (50% of market value).

Margin Call Trigger Formula Mix-Up

Using the wrong formula for long vs. short positions.

Yield Relationship Confusion

Getting the yield relationship backwards for premium/discount bonds.

PREMIUM (price above par): Nominal > Current > YTM
DISCOUNT (price below par): YTM > Current > Nominal

Tax-Equivalent Yield Math

Multiplying by the tax rate instead of dividing by (1 - tax rate).

TEY = Municipal yield / (1 - tax bracket)

Accrued Interest Day Count

Using the wrong day count convention.

Corporate & Municipal: 30/360 (30-day months, 360-day year)
Government (T-bills, etc.): Actual/Actual (real calendar days)

GO vs. Revenue Backing

Confusing what backs each type of bond.

GO Bonds: Backed by taxing power (property taxes)
Revenue Bonds: Backed ONLY by project revenue (tolls, fees, etc.)

Key Point: Revenue bondholders CANNOT sue for taxes if project fails.

In-State vs. Out-of-State Tax Treatment

Assuming all munis are tax-free at all levels.

Federal: Always exempt (except private activity bonds with AMT)
State: Only exempt if issued by YOUR state
Local: Usually exempt, varies by jurisdiction

NAV Calculation Errors

Forgetting to subtract liabilities OR dividing incorrectly.

NAV = (Total Assets - Liabilities) / Shares Outstanding

Open-End vs. Closed-End Fund Trading

Thinking both trade the same way.

Open-end (mutual funds): Always trade at NAV (plus any sales charge)
Closed-end: Trade on exchanges at market price (can be above OR below NAV)

Institutional ≠ Accredited

Treating wealthy individuals as institutional customers.

Institutional: Banks, insurance companies, registered investment companies, entities with $50M+ assets
Accredited: Individuals meeting income/net worth thresholds for private placements

Key Point: A billionaire is still a RETAIL customer for FINRA purposes.

Limit Order Execution Price

Thinking limit orders execute exactly at the limit price.

Buy limit: Execute at limit price OR LOWER
Sell limit: Execute at limit price OR HIGHER

Wrong Settlement Date

Using old settlement rules.

Stocks and corporate bonds: T+1
Government securities: T+1
Options: T+1
Mutual funds: T+1 (at NAV calculated that day)

Rushing Through Calculations

1. Write out the formula FIRST
2. Plug in numbers SECOND
3. Double-check your math THIRD
4. Verify units make sense FOURTH

Not Reading "EXCEPT" Questions Carefully

Circle or underline "EXCEPT," "NOT," "FALSE"
Find the three TRUE statements
The FALSE one is your answer

Running Out of Time

225 minutes / 135 questions = ~1.67 minutes/question
Check at Q45: Should be ~75 min in
Check at Q90: Should be ~150 min in
Save 20-30 minutes for review