[This message was posted by John Harris of BondMart Technologies, Inc. <[email protected]> to the "Derivatives" discussion forum at http://fixprotocol.org/discuss/15. You can reply to it on-line at http://fixprotocol.org/discuss/read/3e7606b4 - PLEASE DO NOT REPLY BY MAIL.]
When someone submits an order to sell a put or a call, he DECLARES whether he is covered. Whether he in fact is covered is another matter. But in practice, in order to implement a covered option position, one should first implement the appropriate position in the underlying, then submit the corresponding option order, declared to be covered. The recipient of the order is well-advised to validate the existence of the underlying position before executing the option order. Otherwise the seller of the option will hold a "naked" position, which may lead to severe losses. Please note that "covered" refers to the option position, not to the entity submitting the order. So "buy-side" and "sell-side" alike may enter into covered options positions. > Thank you > > Does that means the buy-side: > WISHES to be covered with a position in the underlying instrument > or > IS ALREADY covered with a position in the underlying instrument ? > > > > > > The term "covered" applies to short option positions (short meaning you > > have sold the option). A covered call is a short call combined with a long > > position in the underlying instrument. A covered put is a short put > > combined with a short position in the underlying instrument. In each case > > the position corresponding to the option should be equivalent as to size. > > > > Best, > > John > > > > > Hello, > > > > > > Tag203 has two possible values in the SingleOrderMsg: CoveredOrUncovered > > > But no description on its usage > > > > > > Does any one knows if it it used: > > > 1) By the buy-side to report that they are Covered or not by another > > > already existing position (pure reporting for regulation purpose on some > > > countries?) > > > 2) By the buy-side to ASK the broker to Cover him (like Delta Hedging) ? > > > > > > Thanks for your advise [You can unsubscribe from this discussion group by sending a message to mailto:[email protected]] -- You received this message because you are subscribed to the Google Groups "Financial Information eXchange" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/fix-protocol?hl=en.
