A customer is considered covered if they hold which of the following positions in the same account as 5 short October 40 call options?

To determine whether a customer is covered when holding short call options, it is essential to look at the position in the underlying stock relative to the number of call options that the customer has shorted.

Each call option provides the right for the holder to purchase 100 shares of the underlying stock. Therefore, shorting 5 call options means the customer has obligations to sell 500 shares if the options are exercised.

Holding a long position of 500 shares of the underlying stock directly offsets the obligation from the 5 short calls. In essence, this means that if the call options were exercised, the customer has enough shares to deliver, thereby covering the position. A long position of 200 or 50 shares would be insufficient because they would not provide enough shares to fulfill the obligation on the short options. Holding short shares, on the other hand, does not provide coverage at all.

Thus, having long 500 shares aligns perfectly with the short position, confirming that the customer is indeed considered covered in this scenario.