Table 7: Options - Simplified method

The simplified method may only be used by those ADIs that handle a limited range of purchased options. The method requires that options and any associated underlying positions be excluded from the asset class calculations detailed in Tables 1 to 6. Instead a separate capital charge is calculated for each option portfolio.

The method for calculating the capital charge on an options position depends on whether the position is covered or naked. Option positions, which are partially covered, should be separated into a fully covered position and a naked position.

For both covered and naked positions, if positions do not fall within the trading book (for example, options on certain foreign exchange or commodities positions), ADIs may use the book value rather than the market value.