Question

A client previously stated in her investment profile that she's conservative and wants to generate income. She has heard that the market has been hot and she wants to participate in some options trading to take advantage of the market volatility. What should her Registered Representative (RR) do?

A. Advise her to proceed with options trading to maximize gains.
B. Discourage her from options trading as it contradicts her conservative investment profile.
C. Suggest a balanced investment approach combining conservative and speculative options.
D. Recommend aggressive options trading to capitalize on market volatility.

Answer 1

The Registered Representative should discourage options trading for the conservative client and consider a balanced approach that aligns with her investment profile, focusing on stable income and capital preservation.

Step-by-step explanation:

Conservative investment strategy:

The Registered Representative (RR) should discourage her from options trading as it contradicts her conservative investment profile. Options trading is generally considered a high-risk investment strategy that may not align with her goals of generating stable income and preserving capital. Additionally, given the client's conservative profile, the RR should ensure that any investment advice provided aligns with her risk tolerance and investment objectives. Rather than suggesting aggressive options trading, the RR could propose a more balanced approach.

For a conservative investor, it's crucial to maintain a focus on risk management and capital preservation. As an alternative to direct options trading, the RR might suggest investing in a diversified portfolio that includes some growth-oriented components to take advantage of the market's potential without exposing the client to undue risk. This way, the client could potentially participate in the market's upside while still adhering to her conservative investment strategy.