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A covered call involves owning the underlying stock and selling a call against it. This strategy generates premium income while capping upside, but it protects against unlimited loss since the investor already owns the stock. Naked calls expose investors to unlimited risk. Straddles bet on volatility, and naked puts expose investors to large downside losses. The SIE exam emphasizes option strategies by risk profile.

A rights offering gives existing shareholders the right to buy new shares, usually at a discount, to maintain their proportionate ownership when new shares are issued. This prevents dilution. Priority for new investors occurs in IPOs, not rights offerings. Preferred dividends and accredited-only rules apply elsewhere. On the SIE exam, candidates must recognize shareholder protections in rights offerings.

U.S. government securities (Treasuries) are exempt from SEC registration under the Securities Act of 1933. Municipal securities, commercial paper, and certain nonprofit issues are also exempt. Corporate stocks, bonds, and mutual funds require SEC registration unless sold under an exemption (such as Regulation D). The SIE exam emphasizes exempt vs. non-exempt securities to test candidates’ understanding of the scope of the 1933 Act.

Investors in foreign securities face currency risk: fluctuations in exchange rates can impact returns even if the security performs well locally. Interest-rate risk, credit risk, and market risk apply to both domestic and foreign securities. Currency risk is unique to international investments. The SIE exam requires candidates to identify specific risks tied to different security types and markets.

A dealer acts as principal, trading from its own inventory and profiting from bid-ask spreads. A broker acts as an agent for clients. Transfer agents handle issuance and recordkeeping of securities, while registrars oversee preventing over-issuance. The SIE exam requires candidates to distinguish between brokers, dealers, and other market participants.