486 Part IV: Additional Considerations 
with less than I month oflife remaining in the options. A flag indicating an approach­
ing ex-dividend date might also be useful for this purpose. 
If the trader inputs another piece of information into the database, the com­
puter can help him in another follow-up action. In most strategies that were 
described, especially those involving uncovered options, the trader wants to take 
some sort of follow-up action based on the price movement of the underlying stock. 
If the stock rallies too far, he may want to cover short calls or buy other calls as pro­
tection. If the stock declines too far, similar maneuvers would apply to put options or 
to rolling down short calls. If the trader inputs the stock prices at which he would like 
to take action, the computer can monitor each day's closing price of the stock and 
generate a list of positions that have exceeded their upside or downside action points. 
The computer can also do more sophisticated types of position monitoring. 
Recall that it was pointed out that the deltas of the options involved in a position can 
be compared to each other to tell whether the position is bullish or bearish. The 
Black-Scholes model can be used to calculate the deltas of the options in one's posi­
tions. Then the net position can be determined by the computer, thereby telling the 
trader whether his position has become "delta long" (bullish), "delta short" (bearish), 
or neutral. If he sees that a position is bearish and he does not want to be structured 
in that way, he can make bullish adjustments. The delta spread and neutral spread 
strategies very conveniently lend themselves to such types of follow-up action, 
although any of the more complicated straddle writing and protected straddle writ­
ing positions can be monitored usefully in this way as well. 
The computation for determining whether a position is net short or net long 
generally involves calculating the "equivalent stock position" (ESP). If one owns 10 
calls that have a delta of .45, his equivalent stock position from those calls is IO X 100 
shares per call x .45 = 450. That is, owning those IO calls is equivalent to owning 450 
shares of the underlying stock, according to the delta. All puts and calls can be 
reduced to an ESP and can then, of course, be combined with any actual long or 
short stock in the position to produce an ESP for the entire strategy. The resultant 
ESP for each of the trader's positions can be printed from the computer along with 
the items described above. 
Further sophisticated measures can be taken. The computer can generate a 
table of results at expiration. If so desired, this could be presented as a graph, but that 
is not really necessary. A table suffices quite well, as shown by most of the examples 
in this book. Such a picture has meaning only if all options in the position expire at 
the same time. If they don't, one may instead want the computer to mmpose a table 
of results or a graph at near-term expiration. Thus, in a calendar spread, for example, 
one could see what sorts of profitability he would be looking at when it was time to 
remove the spread.