Brokerage
Stock Options
Introduction
Stock options are derivatives that can be applied to different market conditions for risk management and leveraged investing. Investors can choose the options of either Buy (Long Position) or Sell (Short Position). Call option buyers are entitled to exercise their right at the strike price before the expiry date and the sellers have the obligation to exercise the option.
introduction
introduction
The Advantages of Stock Options:
  1. Leveraged trading
  2. Low transaction cost
  3. Hedging against market risks or Lock in Profit
  4. Set the stock buy-in price
  5. Combined options strategies within different market conditions (Bull market, Bear market, or Market fluctuations) in order to meet trading needs
Factors that affect stock option prices –6 factors affect the option prices
Call OptionPut Option
Underlying Stock Price
Strike Price
Underlying stock Volatility
Time to Maturity Date
Interest Rate
Dividends
A description of a combination of stock options:
Buy Call Option (Long Call):
Reason:Expect stock price goes up
Profits:Underlying Stock Price > Strike Price + Option Premium
Breakeven:Underlying Stock Price = Strike Price + Option Premium
Losses:Underlying Stock Price < Strike Price + Option Premium
Potential Profits:Unlimited
Potential Losses:Option Premium
Buy Put Option (Long Put):
Reason:Expect stock price goes down
Profits:Underlying Stock Price - Option Premium < Strike Price
Breakeven:Underlying Stock Price - Option Premium = Strike Price
Losses:Underlying Stock Price - Option Premium > Strike Price
Potential Profits:Underlying Stock Price = 0
Potential Losses:Option Premium
Sell Call Option (Short Call):
Reason:Expect stock price goes down
Profits:Underlying Stock Price < Strike Price + Option Premium
Breakeven:Underlying Stock Price = Strike Price + Option Premium
Losses:Underlying Stock Price > Strike Price + Option Premium
Potential Profits:Option Premium
Potential Losses:Unlimited
Sell Put Option (Short Put):
Reason:Expect stock price goes up
Profits:Underlying Stock Price - Option Premium > Strike Price
Breakeven:Underlying Stock Price - Option Premium = Strike Price
Losses:Underlying Stock Price - Option Premium < Strike Price
Potential Profits:Option Premium
Potential Losses:Underlying Stock Price = 0
Contract Summary
Option TypesCall & Put
Contract Size1 board lot of the underlying shares (Some contract are exempted)
Contract MonthsSpot, the following two calendar months and the following three quarter months ( The Exchange may extend the expiry month if needed )
Contract ValueOption Premium x Contract Size
Lowest Price MovementHK$0.01
From 9th December, 2013, the lowest price movement of the 4 stock options series below are narrowed to HK$0.001:
1) Bank of China Limited
2) China Construction Bank Corporation
3) Industrial and Commercial Bank of China Limited
4) Agricultural Bank of China Limited
Trading Period9:30 am to 12 pm & 1 pm to 4 pm
Expiry DateThe second to last business day of the contract month
Exercise in American Style Options can be exercised at any time before 6:45 p.m. on any business day up to and including the last trading day
Exercise FeeHK$2.00
SettlementSettlement period as below:
T+1 (Full payment of option premium)
Or
T+2 (Stock transfer after exercising the option)
Transaction Fees
(HKEX )
Tier 1: HK$3.00
Tier 2: HK$1.00
Tier 3: HK$0.50
Brokerage CommissionNegotiable

All information contained herein is for reference only. Please access below website link for Margin Rates for Options Contracts and Client Margin Estimate Reference Table:
https://www.hkex.com.hk/eng/market/rm/rm_dcrm/riskdata/margin_seoch/somargin.htm

If there is any inconsistency and ambiguity between the Chinese and English versions, the English version shall prevail.