Suppose you are a portfolio manager for a wealthy individual who holds many different options in both strike price and expiration on one particular stock. You want to minimize the risk in the total position. To accomplish that it would help to know how many shares of stock is represented by the entire portfolio of options and stock. The equivalent stock position (ESP) represents the number of shares of the underlying stock if all option positions were converted into stock at their current values and added to the shares of stock held.
How do you determine your client's equivalent stock position?