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+162 Part II: Call Option Strategies 
+Number of 
+round lots = Current delta x Number of short calls - Round lots held long 
+to buy 
+Note: If a negative number results, stock should be sold, not bought. 
+These formulae can be verified by using the numbers from the examples above. For 
+example, when the delta of the October 50 was .80 with the stock at 57, it was seen 
+that buying 100 shares of stock would reestablish a neutral ratio. 
+Number of round lots to buy= .80 x 5 3 = 4- 3 = 1 
+Also, if the position was to be rolled up to the October 60 (delta = .40), it was seen 
+that 7.5 October 60's would theoretically be sold: 
+Number of calls to sell = __l_ = 7.5 .40 
+There is a more general approach to this problem, one that can be applied to 
+any strategy, no matter how complicated. It involves computing whether the position 
+is net short or net long. The net position is reduced to an equivalent number of shares 
+of common stock and is commonly called the "equivalent stock position" (ESP). Here 
+is a simple formula for the equivalent stock position of any option position: 
+ESP = Option quantity x Delta x Shares per option 
+Example: Suppose that one is long 10 XYZ July 50 calls, which currently have a delta 
+of .45. The option is an option on 100 shares of XYZ. Thus, the ESP can be computed: 
+ESP = 10 x .45 x 100 = 450 shares 
+This is merely saying that owning 10 of these options is equivalent to owning 450 
+shares of the underlying common stock, XYZ. The reader should already understand 
+this, in that an option with a delta of .45 would appreciate by .45 points if the com­
+mon stock moved up 1 dollar. Thus, 10 options would appreciate by 4.5 points, or 
+$450. Obviously, 450 shares of common stock would also appreciate by $450 if they 
+moved up by one point. 
+Note that there are some options - those that result from a stock split- that are 
+for more than 100 shares. The inclusion of the term "shares per option" in the for­
+mula accounts for the fact that such options are equivalent to a different amount of 
+stock than most options. 
+The ESP of an entire option and stock position can be computed, even if sev­
+eral different options are included in the position. The advantage of this simple cal-