Chapter 04 · Section 4.1

Covered Option Position

Which of the following combinations represents a covered option position?

(N.B. The contract size of an IMM currency futures option is 1 futures contract per option. For Nestlé options, the contract size is usually 5 shares per option.)

• a) Long 1 Nestlé Sept 8000 call, short 5 Nestlé shares
  No. Only a part can be covered by a short position in the underlying asset. Moreover, it is often not possible to have a short position in a share
  b) short 1 Nestlé Sept 8000 call, Long 5 Nestlé shares
  c) short 5 IMM DM Sept 50 DM puts, long 5 IMM DM Sep. futures