1.4 Options Account Maintenance

Keeping the Profile Current

Supervision is continuous. When a customer reports a change — job loss, inheritance, a new objective — the firm must update the account record promptly. A material change (for example, a retiree's net worth dropping sharply) may require re-approval of the trading level, because a level that was suitable can become unsuitable.

Position Limits

The OCC and the options exchanges impose position limits — the maximum number of contracts on the same side of the market in one underlying. "Same side" aggregates bullish positions (long calls + short puts) separately from bearish positions (long puts + short calls).

Equity limits are tiered by the underlying's trading volume and shares outstanding over the most recent six months:

The $250,000-contract figure is the top equity tier; many large-cap names sit there. Accounts acting in concert are aggregated — a customer cannot split a position across related accounts to dodge the limit.

Exam trap: Long calls and long puts are not combined — they are on opposite sides of the market. Only same-side positions count toward one limit.

Exercise Limits

Exercise limits cap the number of contracts a customer (or group acting in concert) may exercise within any five consecutive business days. The exercise limit equals the position limit for that underlying. This stops a holder from using mass exercises to evade the spirit of the position limit.

Account Statements

Statement Red Flags

• Unauthorized or unexplained transactions.
• Turnover inconsistent with the stated objective.
• Concentrated positions or large unrealized losses.
• Uncovered margin deficiencies.

Recordkeeping — SEA Rule 17a-4

Securities Exchange Act Rule 17a-4 governs retention. Records must be retrievable for examination by FINRA and the SEC.

Worked Maintenance Scenario

A customer holds 200,000 long calls and 100,000 short puts on the same large-cap stock (top tier, 250,000-contract limit). Same side = 200,000 + 100,000 = 300,000 contracts, which exceeds the 250,000 limit. The supervisor must flag the violation, halt new same-side opening orders, and require the customer to reduce. Counting the long calls against long puts (opposite sides) would be the wrong analysis.

Aggregation and Acting in Concert

Position and exercise limits apply to a customer and to all accounts in which the customer has an interest or which are under common control. If an adviser directs ten accounts to take the same bullish position in one underlying, those accounts are acting in concert and are aggregated for the limit. The supervisor's surveillance must look across related accounts, not just at one account in isolation.

Hedge Exemptions

Certain fully hedged positions are exempt from, or receive expanded, position limits. For example, a short call written against an equivalent long stock position (a covered call) does not raise the same manipulation concern, and qualified hedge strategies can qualify for exemptions filed with the exchange. The exam-level takeaway: bona fide hedges can be excluded from the standard cap, but speculative same-side accumulation cannot.

LOPR — Large Options Position Reports

Firms must file Large Options Position Reports (LOPR) with the OCC and FINRA when a customer (or aggregated group) holds 200 or more contracts on the same side of the same underlying. LOPR is the surveillance feed regulators use to police position-limit compliance, so the supervisor must ensure the firm's reporting is accurate and timely.

Putting Maintenance Together

Ongoing options supervision is a daily loop: confirm profiles are current and trading levels still fit, verify no underlying breaches its tiered position limit on a same-side basis, watch the five-business-day exercise count, sample-review statements for unauthorized or unsuitable activity, and preserve every record for the SEA Rule 17a-4 retention period so it is retrievable when FINRA or the SEC examines the firm. The recurring exam theme is that approval at opening does not end the supervisor's duty — the obligation runs for the life of the account.