Options trading is a high-risk type of trading. Before trading, please read the Exchange Traded Options Product Disclosure Statement (PDS), Target Market Determination (TMD) and ASX Understanding Options Trading Booklet.
Option introduction
Option ( Option ) is a right to choose, which refers to the right to buy or sell a certain amount of a certain commodity at a certain price at a certain time in the future. It is a financial instrument generated on the basis of futures, giving the buyer (or holder) the right to buy or sell the underlying asset . The holder of an option can choose the right to buy or not to buy, sell or not to sell within the time specified by the option, and to implement the right or waive the right, while the seller of the option only bears the provisions of the option contract obligations.
Option classification
( 1 ) According to the rights of options, there are two types of call options and put options:
i. Call Options: The buyer of an option pays a certain amount of premium to the seller of the option and has the right, but not the obligation, to buy a certain amount of the specific commodity specified in the option contract from the seller of the option at a pre-agreed price during the term of the option contract. The option seller is obligated to sell the specific commodity specified in the option contract at the option buyer's request at the price specified in the option contract during the term of the option contract.
ii. Put Options: The buyer of an option pays a certain amount of premium to the seller of the option and has the right, but not the obligation, to sell a certain amount of the specific commodity specified in the option contract to the seller of the option at a pre-agreed price during the term of the option contract. The option seller is obligated to buy the specific commodity specified in the option contract at the option buyer's request at the price specified in the option contract during the term of the option contract.
( 2 ) Divided by the delivery time of the options, there are two types of American options and European options:
i. American options mean that the right can be exercised at any time during the validity period specified in the option contract;
ii. European-style options mean that the rights can be exercised on the expiration date specified in the option contract. The buyer of the option cannot exercise the rights before the expiration date of the contract. After the expiration date, the contract will be automatically invalidated.
( 3 ) According to the classification of the target on the option contract, there are stock options, stock index options, interest rate options, commodity options, and currency conversion options.
Important terms for options
( 1 ) Exercise price ( Strike Price, also known as the " strike price " ), if X stock price to HKD 10, you buy a HKD 15 call option, HKD 15 is the exercise price.
( 2 ) Expiration Date: If the option bought expires on 29 September 2020, this is the expiration date.
( 3 ) Open Interest: The number of contracts that have not expired or have been executed.
( 4 ) Contract : The unit of options is a contract, usually each contract is the right to 100 shares.
Frequently asked questions
( 1 ) What is the smallest unit of Hong Kong stock options trading?
The minimum unit of Hong Kong stock options trading is 1 contract. The number of underlying shares corresponding to an option contract = the number of underlying shares per lot * the multiple of underlying stock trading units. For example, Xiaomi’s “primary stock trading unit multiple” is 5 , and each underlying stock has 200 of lots, the number of underlying shares corresponding to an option contract is 1000 .
( 2 ) What are the commission fees for options?
The commission fee charged by Tiger Brokers is 0.2% of the transaction amount, minimum of HKD 3 per order.
( 3 ) What is the trading time of options?
The trading hours of options are 9:30 to 12:00 and 13:00 to 18:00 HKT, corresponding time is 11:30 to 14:00 and 15:00 to 18:00 AEST or 12:30 to 15:00 and 16:00 to 19:00 AEDT.
( 4 ) Can options be exercised in advance?
Currently, Tiger Trade does not support early exercise.
( 5 ) Can the purchased option be closed at any time before the expiry date?
Options before the expiry date, whether long or short, can be traded at any time at the market price during the trading hours before the expiry date.
( 6 ) What will happen to an in-the-money options contract that I am still holding onto on its expiration day?
If auto-exercise at expiry applies (≥1.5% in-the-money according to HKEX rules) for your about-to-expire Hong Kong options contract ("Contract") when it expires, it will auto-exercise by default.
If your contract is not eligible for auto-exercise when it expires and you did not request to exercise it before it expires, that contract will expire worthless.
Exercising a long call options contract involves buying the full amount of the underlying security for a contract ("Sufficient Underlying"), while exercising a long put options contract involves selling the sufficient Underlying.
On the expiration day of a contract, before it expires, if you do not own sufficient assets for it to be auto-exercised at expiry:
We will, subject to availability and our risk management policies, lend you assets* for exercising.
We may liquidate a contract without sufficient assets for exercising before it expires to reduce potential risks, especially for a long put contract with no sufficient underlying in its owner's account.
We may also override the auto-exercise default for a Contract without sufficient assets for exercising at its expiry.
*The assets lent to you for exercising will still be subject to fluctuations in their valuation and will incur interest charges in your account.
You may want to consider closing the position of a contract yourself or acquiring Sufficient Underlying for exercising to reduce uncertainty.
If your version of the Tiger Trade app does not have the facility for you to instruct us not to auto-exercise, please contact our Client Service team promptly should you wish to do so.
( 7 ) Will the automatic invalidation of options, liquidation and system exercise be found in the transaction records?
Yes, you can click on the order details to view related records and instructions.
( 8 ) Do you support short trading of Hong Kong stock options?
Yes.
( 9 )What should I do if my account is unable to meet the margin requirement on the option contract expiration date, out of options exercise or assignment?
Tiger Brokers usually calculates the required fund for exercising in-the-money or near-in-the-money options at any time on the date of expiration before closing. In case of insufficient cash in your account, Tiger Brokers may liquidate positions in your account to prevent a margin deficiency from option exercise. If you anticipate that you will be unable to meet the margin requirement after the option exercise, you should either close positions or deposit additional funds as expiration nears.
Tiger Brokers reserves the right to:
Forced liquidation prior to expiration,
Allow the options to lapse,
Allow options to be exercised and liquidate other positions.