TAKING THE SERIES 6 EXAM? THEN MAKE SURE THAT YOU STUDY AND UNDERSTAND EMPLOYER-SPONSORED STOCK OPTIONS, BOTH QUALIFIED AND NON-QUALIFIED

The Series 6 requires knowledge of employee stock options, both qualified and non-qualified. How do I know this? FINRA publishes a Series 6 Content Outline that lists all the areas covered by the Series 6 Exam, and it lists Employer-Sponsored Plans and Stock Options as Required Knowledge in Section 2.1. Therefore, before sitting for the Series 6 Exam, make sure that you have studied and understand these stock options.

Bob Eder in his Study for the Series 6 Exam has a full treatment of the differences between qualified options, called incentive stock options (ISO), and non-qualified stock options (NQSO). Here is a sample of Bob Eder's discussion:

Incentive Stock Options (ISO)                                      (2.1)

A recipient of incentive stock options (ISO) must be an employee of the granting corporation. GHI Corp. may not grant ISO's to Dan, a non-employee of GHI. The IRS treats ISO’s with favorable tax treatment. A taxpayer recognizes gain only when he/she sells the shares, not when he/she exercises the options. Furthermore, IRS will tax any gain as long-term capital gain, and not as ordinary income.

Favorable Tax Treatment                                                      (2.1)

If an employee, like Mr. Herbert, CEO of GHI Corp., receives ISO’s from GHI, and wants favorable long-term capital gain tax treatment, IRS requires that Mr. Herbert fulfill the following conditions—Mr. Herbert may not sell the GHI shares for a two-year period following the date on which GHI Corp. granted him the options; and, additionally, Mr. Herbert may not sell the GHI shares for at least one year and one day following the day on which he exercises the options. In addition, on the day that GHI Corp. grants Mr. Herbert the options, Mr. Herbert's GHI options exercise price must be above the current market price of GHI shares. This means that if GHI stock is currently at $45 on the day when GHI Corp. grants the options to Mr. Herbert, the GHI options exercise price must be above $45, say, at $55.

Here is the link to FINRA's Content Outline for the Series 6 Exam. See the references to Employer-Sponsored Plans and Stock Options in FINRA's Series 6 Content Outline, Section 2.1.

Study for the Series 6 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link for Bob Eder's Study for the Series 6 Exam on Amazon.

See Bob Eder's Author Page on Amazon.com.

For questions about Bob Eder's Study for the Series 6 Exam, or questions in general about the Series 6 Exam, or about Employer-Sponsored Plans and Stock Options, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001.