This is the value, as at the relevant date, of equity options the entity has purchased, as determined in accordance with relevant prudential standards.A bought option includes both put and call options that have been purchased by an entity. It provides the purchasing entity with the right but not the obligation to buy or sell a specific amount of the underlying asset at a pre-agreed price, on or before a specific future date.An equity contract is any contract that at least partly transfers the equity risk of an underlying equity security from one party to another. 

This item represents the capital charge. Refer to APS 116.

The simplified method may only be used by those ADIs that handle a limited range of purchased options.

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.