Clearing and Settlement of Derivatives

For example, if we buy shares at 100 and write the 150 calls

for 10, the maximum profit possible (unless the option is closed out)

is 60.

The shares rise to 190. In our portfolio we are showing a profit of

90 on the stock. However, the option price has risen to 50 so we are

also showing a loss of 40 on the option position. The net result is

that we are showing a profit of 50 so that is OK. However, if we failed

to reflect the loss on the option revaluation we would be overstating

the portfolio’s performance by 90.

Then the option position is assigned and we deliver the shares at

150 realising a profit of 50 and though yesterday ...