Overview of Stock Option Products
Options --- a financial derivative instrument in which buyers and sellers agree to trade at a price determined by both parties on a particular day. The option buyer pays a premium to obtain the right to exercise the option, while the seller, after receiving the premium, must fulfill the obligation to the buyer in exercising his rights.
Stock options can be divided into “calls” and “puts”
Call option buyers have the right to buy the underlying shares at an agreed price (exercise price) on or before a certain date (expiry date). When the call option is exercised, the option seller is obliged to sell the underlying stock on or before the expiry date at the exercise price.
Put option buyers have the right to sell the underlying shares at an agreed price (exercise price) on or before a certain date (expiry date). When the put option is exercised, the option seller is obliged to buy the underlying stock on or before the expiry date at the exercise price.
Rights & Obligations of Stock Options:
Investors can choose to buy (long) or sell (short) stock options.
For long contracts, investors are required to pay a premium but not a deposit.
For short contracts, investors must first deposit sufficient funds into the account before engaging in the transaction; the deposit amount is based on different exercise prices and expiry dates and will consequently be adjusted according to the market conditions. In a volatile market, option sellers may need to provide additional deposits. However, if clients hold the same amount of underlying stocks as a covered call, they do not need to pay the deposit.
Bullish investors have the right to buy the underlying shares at an exercise price at any time prior to the expiry date.
When the price of the underlying stock rises, attractive profit-making opportunities can be found.
When the price of the underlying stock falls, the loss is limited to the option price itself.
In the event that investors are somewhat but not overly bearish on the underlying stock when the option is exercised, the stock should be sold at the exercise price.
Once a profit is made when the price of the underlying stock falls, the profit is limited to the option price itself.
Once a loss is incurred when the price of the underlying stock rises, the loss can be unlimited.
In the event that investors are somewhat but not overly bearish on the underlying stock when the option is exercised, the stock should be bought at the exercise price.
Once a profit is made when the price of the underlying stock rises, the profit is limited to the option price itself.
Once a loss is incurred when the price of the underlying stock falls, the potential loss can be significant.
Benefits of Buying & Selling Stock Options:
Hedging the Risks of Related Assets
The share option products offered by the Hong Kong Stock Exchange include the major blue chips and H shares, allowing investors to use different option combinations to hedge against the investment in the underlying stocks.
Option buyers can make good use of this instrument to multiply their investment gains.
Flexible Investment Strategies
Stock options allow long and short positions. No matter whether stock prices rise or fall, investors can enjoy profit-making opportunities and fulfill their various investment objectives.
Low Transaction Costs
Transaction costs of stock options are lower than buying and selling the same amount of underlying stocks. Moreover, no stamp duty is required for trading on stock options.
Stock Options – Notes on Trading
AM Session: 9:30 AM- 12:00 noon
PM Session: 1:00 PM- 4:00 PM
You may contact your broker or use the online trading system to execute buy or sell orders. Once you have placed an order on the trading platform, you may contact the broker to change or cancel the unfinished transaction instructions. However, once a trading order has been acknowledged and agreed upon, it may not be modified or canceled. Once transactions are completed through the Customer Service Department, the commission will be charged in accordance with the Company’s standard rates. Trading transactions placed through the Customer Service Department will also be displayed on the trading platform. You may also change or cancel these transactions prior to the completion of the instruction.
The total cash amount on your online trading platform is shown without commission, transaction cost, and transaction levy deductions until before 9:00 am of the next trading day.
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