Escrow Receipt

An escrow receipt is a document, issued by a bank, that certifies a specific customer owns a specific block of stock and that the shares are being held in escrow (set aside and locked up) on the customer's behalf. In the options market, it is used as proof of ownership when someone sells a call option against stock they already hold.

Here is where it fits in. When you sell ("write") a call option, you are giving the buyer the right to buy shares from you at a set price. If you already own those shares, the position is called "covered" - you're not exposed to unlimited risk because you can just hand over stock you already have if the option is exercised against you. A broker normally confirms this by seeing the shares sitting in your account. An escrow receipt does the same job through a bank instead: the bank confirms it is holding the shares for you, locked up, so the shares cannot be sold elsewhere while the call is outstanding.

The nuance that trips people up is that an escrow receipt is not the stock itself and not the option - it's a piece of paperwork that substitutes for having the shares physically deposited with the broker. It lets someone prove a covered position without moving the actual shares out of the bank's custody. This matters mostly for larger or more traditional holders (for example, someone whose stock is held at a bank rather than a brokerage), and it is a much less common mechanism today than simply holding shares directly in a brokerage account.

Because this involves a formal bank/broker verification mechanic rather than a plain market concept, the exact procedures and how commonly escrow receipts are used today can vary and should not be assumed from an older textbook description.