An ADR Call Can Represent More Than 100 Ordinary Shares

By Options Matrix Pro Editorial Team | Prepared 28 October 2026

A fictional investor owns 300 ordinary shares of a foreign company and studies a US call with a 100-share deliverable. Counting the holding as three covered calls would skip a necessary question: which security does the option deliver?

If the contract specifies depositary shares, each representing two ordinary shares, those 300 ordinary shares correspond to only 150 depositary shares. Even that conversion of units says nothing about whether the required securities are available for delivery. The receipt program, actual option terms and broker's accepted arrangements need separate checks.

Count depositary shares before counting contracts

The SEC's depositary-receipt bulletin explains that an American Depositary Receipt, or ADR, evidences ownership of American Depositary Shares, or ADSs. Those shares represent an interest in foreign-company shares deposited with a bank. Market participants often use ADR and ADS interchangeably. Here, ADS identifies the security in the fictional option's deliverable.

The ratio can represent a fraction of an ordinary share, one share or several shares. A company name and a matching number on two position screens cannot establish that the securities are interchangeable.

If one depositary share represents two ordinary shares, a fictional call delivering 100 depositary shares corresponds to 200 ordinary shares, not 100.

For that stipulated ratio, the unit conversion is:

Ordinary-share equivalent = contracts x depositary shares delivered per contract x ordinary shares represented by each depositary share

These are arithmetic equivalents, not conversion confirmations or suitable contract quantities. The contract's own terms specify the underlying security and quantity. The hypothetical underlying here is the ADS. An adjusted or otherwise different contract needs its own actual deliverable and multiplier.

The ratio also changes the interpretation of a strike. A fictional $14-per-ADS strike represents $7 per ordinary share in US-dollar-equivalent terms under a two-for-one ratio. It does not promise a $14 sale price for each ordinary share.

Economic equivalence still needs a delivery path

The SEC bulletin describes creation of receipts through delivery of ordinary shares to the depositary bank or its custodian, followed by issuance. That process connects two securities; it does not make a holding of ordinary shares an already-issued ADS holding.

A matching ordinary-share quantity does not establish that the broker can deliver the option's required depositary shares when assignment arrives.

A real review needs the current deposit agreement and ratio, any issuance or cancellation restrictions, fees, custody instructions, processing dates and the option broker's accepted cover. A submitted conversion request is weaker evidence than completed issuance, credited securities and an accepted delivery arrangement. This is an operational inference from the two securities and the delivery obligation, not a claim that every broker follows one conversion process or that no other qualified arrangement can exist.

The Options Industry Council's covered-call guide pairs the short call with an equivalent long position. A portfolio's exposure to the same issuer cannot by itself confirm the account's ability to deliver the specified security. Broker permission and settlement handling remain account-specific, as the cross-broker covered-call article illustrates.

Follow 300 ordinary shares through one fictional call

Consider an entirely fictional foreign issuer and depositary program. Each ADS represents two ordinary shares. An investor buys 300 ordinary shares at 12 local-currency units each. Stipulate an exchange rate of US$0.50 per local unit, so the initial purchase costs US$1,800. No real currency, issuer, receipt program, option listing, quote or broker procedure is identified.

Assume the investor then completes a permitted conversion of 200 ordinary shares into 100 ADSs. The option broker accepts those 100 ADSs as available cover before the modelled call opens. The investor retains 100 ordinary shares directly. The deposited 200 ordinary shares back the ADSs; the investor cannot also count them as a separate direct holding.

Initially each ADS is worth US$12 and each retained ordinary share is worth US$6. The two holdings therefore total US$1,800: US$1,200 in ADSs plus US$600 in directly held ordinary shares. Conversion has created neither an extra US$1,200 asset nor a second issuer.

The fictional call is American-style, unadjusted and physically delivered, with 100 ADSs per contract, a US$14 strike, a 100 premium multiplier and three months until expiration. One call is sold for US$0.60 per ADS, receiving US$60. At entry, that cash is matched by a US$60 short-option liability; receiving it is not an immediate US$60 profit.

The following alternatives all start from that same position. No early assignment occurs in these cases. The exchange rate stays at US$0.50 per local unit, and the ADS price is stipulated to equal twice the ordinary share's US-dollar value. These ideal price relationships are model assumptions, not guaranteed conversion prices or an arbitrage opportunity. All figures below are US dollars unless labelled otherwise.

1. The ordinary share ends at 8 local units and the ADS at $8.

   • The call expires without exercise or assignment; no option liability remains.
   • The investor retains 100 ADSs worth $800 and 100 ordinary shares worth $400.
   • Cash remains $60. Ending economic value is $800 + $400 + $60 = $1,260.
   • Change from the original $1,800 is a $540 loss before costs and taxes.

2. The ordinary share ends at 12 local units and the ADS at $12.

   • The call expires without exercise or assignment; no option liability remains.
   • The investor retains 100 ADSs worth $1,200 and 100 ordinary shares worth $600.
   • Cash remains $60. Ending economic value is $1,200 + $600 + $60 = $1,860.
   • Change from the original $1,800 is a $60 gain before costs and taxes.

3. The ordinary share ends at 18 local units and the ADS at $18.

   • The call is exercised and assigned. The investor delivers all 100 ADSs and receives 100 x $14 = $1,400.
   • No ADSs or option position remain. The investor still owns 100 ordinary shares worth $900.
   • Cash is $1,400 + $60 = $1,460. Ending economic value is $900 + $1,460 = $2,360.
   • Change from the original $1,800 is a $560 gain before costs and taxes.

In the fictional assignment case, delivering 100 depositary shares leaves 100 separate ordinary shares in the portfolio; the $1,400 strike receipt does not liquidate that residual holding.

The last case can also be reconciled as a $200 gain on the ADS holding sold for $1,400, a $300 unrealised gain on the retained ordinary shares, and $60 option premium. Total gain is $560. The ordinary shares backing the delivered ADSs have gone with the receipts; adding their value again would overstate the portfolio.

One call caps the sale price of the 100 ADSs during the modelled term. It leaves the separate 100 ordinary shares exposed to further gains and losses. In the model's zero-value extreme, both holdings become worthless and the call expires, leaving $60 against the original $1,800, a $1,740 loss. The premium supplies a small cushion, not a stock-price floor.

Four portfolio limits remain separate

Liquidity

An ordinary-share market, an ADS market and the option market can have different spreads, trading hours and available size. Conversion processing is another constraint, rather than a quoted exit price. The SEC's international-investing guide discusses foreign-market liquidity and operational differences. The OMP liquidity lesson explains why a midpoint does not promise a fill. A plan requiring a prompt exit may be unsuitable if it depends on an unconfirmed conversion or thin market.

Concentration

The fictional 100 ADSs and 100 direct ordinary shares represent the same issuer. Splitting the holding between two security forms adds no second company. After assignment in case three, a $900 issuer holding remains. A portfolio review that removes the whole company merely because the call was assigned would omit that asset and its risk. The covered-call lesson explains the upside cap and continuing share downside; neither establishes an appropriate issuer weight.

Time horizon

Three months is the fictional option's term, not a promised conversion window or settlement timetable. FINRA's assignment explanation explains that American-style equity options can be exercised before expiration. Issuance scheduled for later cannot be assumed to meet an earlier assignment. Confirm customer deadlines, custody completion, delivery requirements and any relevant market holidays with the firms for the actual securities. An investor unable to monitor that dependency may find the proposed structure unsuitable.

Funding suitability

The example assumes completed, accepted cover and a fully paid $1,800 holding. It gives no margin amount or minimum deposit for an unconverted position. Without accepted deliverable cover, a firm may refuse the trade or impose its own requirements; a short call's standalone rising-price loss can be theoretically unlimited. Related ordinary shares may change the combined economics without solving delivery or cash needs. A $60 credit does not establish capacity to acquire missing ADSs, meet margin demands or bear a forced close. Those are separate broker and loss-capacity checks.

Currency, fees and tax also matter. The fixed exchange rate deliberately removes a risk that the SEC's international-investing guide identifies: currency changes can increase or reduce returns. US-dollar trading does not establish a currency hedge. The ADR bulletin notes that deposit agreements can authorise custody and other fees. Actual issuance/cancellation, trading, currency-conversion, financing and borrowing costs need checking too. No fee schedule or conversion availability is assumed beyond the fiction.

Tax consequences depend on the investor, jurisdictions, account, conversion and sale. The model computes no tax liability, tax-free conversion, deductible loss or holding-period treatment. Neither the receipt ratio nor a US option quote resolves those questions.

Sources and scope

Primary passages independently reviewed on 1 November 2026, Australia/Brisbane:

• SEC: Investor Bulletin, American Depositary Receipts, dated 17 August 2012; receipt/share distinction, ratios, creation and fees. Access today does not make this a newly issued bulletin.
• SEC: International Investing; currency, liquidity and market-operation limitations.
• OIC: Covered Call (Buy/Write); equivalent long position, limited premium cushion and surrendered appreciation.
• FINRA: Trading Options, Understanding Assignment; holder/writer roles, early American exercise and delivery obligations.
• OIC: Naked Call; standalone uncovered-call loss and margin/funding risks.

All securities, units, prices, exchange rates, accepted arrangements and scenarios are fictional. The expiration model excludes fees, bid-ask spreads, dividends, interest, taxes, financing, borrowing, early assignment, corporate actions, conversion delays and changes to the deposit agreement or option terms. Ending security values are marks, not settled cash or assured exits. No real program, broker, contract or conversion service has been assessed.

Options Matrix Pro publishes this article and has a commercial interest in its options-research platform. This arithmetic does not assert that OMP verifies depositary programs, conversion status or broker cover. This is general education, not personal financial, investment, tax or legal advice or a recommendation to convert shares or write calls. Options are not suitable for everyone. Obtain and read the current Characteristics and Risks of Standardized Options from your broker before trading. This article is not a complete disclosure-document audit or professional suitability assessment. The general investment disclaimer applies.

Before treating ordinary shares as cover for an ADS option, record the exact security and quantity to be delivered, the current receipt ratio and the arrangement the option broker has accepted. Keep the residual ordinary-share holding in the portfolio record after any ADS delivery.