Covered option transaction
Covered option transaction means any transaction involving options or warrants in which the customer's risk is limited and all elements of the transaction are subject to contemporaneous exercise if:
(1) The amount at risk is held in the account in cash, cash equivalents, or via an escrow receipt; and
(2) The transaction is eligible for the cash account by the rules of the registered national securities exchange authorized to trade the option or warrant or by the rules of the creditor's examining authority in the case of an unregistered option, provided that all such rules have been approved or amended by the SEC.
12 CFR § 220.2
The terms used in this part have the meanings given them in section 3 of the Act or as defined in this section as follows: