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Discussions > Derivatives > Exact usage of Tag203:CoveredOrUncovered for Options

Exact usage of Tag203:CoveredOrUncovered for Options

Complete message thread from old site

Yves-eric Martin
1175 days ago,(2011/02/04)

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

FIX Trading Community
1174 days ago,(2011/02/04)

[ original email was from John Harris - john.harris@bondmart.com ]
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

Yves-eric Martin
1174 days ago,(2011/02/04)

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

FIX Trading Community
1174 days ago,(2011/02/04)

[ original email was from John Harris - john.harris@bondmart.com ]
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

Yves-eric Martin
1174 days ago,(2011/02/04)

All clear, thanks a lot !

> 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