Series 27: Covered Long Positions

Covered Long Positions

Where a broker-dealer is long a put (call) for which it has an offsetting long (short) position in the same underlying instrument, the haircut is calculated by deducting the required percentage of the current market value of the underlying instrument, not to exceed the out-of-the-money amount of the option. A minimum haircut is $25 for each option contract, provided that the minimum charge need not exceed the intrinsic value of the option.

Example: A brokerage firm is short