Exercise Limit

For purposes of exchange POSITION LIMITS on listed options, which positions are aggregated as being on the SAME side of the market?

1. A.Long calls with long putsWrong. Those are OPPOSITE directional bets.
2. B.Short calls with short putsWrong-but-tempting. A short straddle spans BOTH sides, not one.
3. C.All option positions regardless of directionWrong. Aggregation is directional by design.
4. D.Long calls with short putsCorrect. Both profit from rising prices - one bullish side.

Why: Position limits combine bullish positions (long calls + short puts) on one side and bearish positions (long puts + short calls) on the other, preventing evasion through equivalent structures. Citation: exchange position limit rules; FINRA Rule 2360(b)(3). Takeaway: aggregate by market direction, not option type.

The options exchanges impose both POSITION limits and EXERCISE limits on listed equity options. An exercise limit restricts:

1. A.The number of contracts on the same side of the market that an investor, or a group acting in concert, may exercise within any five consecutive business daysCorrect. The exercise limit is the five business day companion to the position limit.
2. B.The number of contracts a market maker may write in a single sessionThe limits apply to positions and exercises, not to a market maker's writing capacity in a session.
3. C.The number of contracts on the same side of the market that may be opened in a single trading dayNeither limit is expressed as a daily opening cap.
4. D.The number of contracts an investor may hold open at any one timeThat is the position limit, not the exercise limit.

Why: A position limit caps how many contracts on the same side of the market an investor, or a group of investors acting in concert, may hold open at one time. An exercise limit is the companion restriction on the way out: it caps the number of contracts on the same side of the market that may be exercised within any five consecutive business days. Without it, a trader could simply hold a permissible position and then demand delivery of an overwhelming quantity of stock, defeating the purpose of the position limit. Both limits aggregate accounts under common control, and bullish positions, long calls and short puts, count together on the same side.