Understanding Stock Options by Jangoint - HTML preview

E. HONG KONG EXCHANGES AND CLEARING LIMITED’S STOCK OPTIONS MARKET

TRADING SYSTEM AND PRODUCTS TRADED

In Hong Kong, options on individual shares are traded on HKEx. The options are traded through an automated electronic trading system and prevailing market prices for options are distributed digitally via information vendors and the HKEx Teletext system.

The stocks eligible for options will generally be those which are liquid, where there are a large number of shares in public hands and a large number of shareholders.

OPTIONS EXCHANGE PARTICIPANTS

Investors may trade options by opening an account with an Options Trading Exchange Participant or an Options Broker Exchange Participant. Options Trading Exchange Participants and Options Broker Exchange Participants are Exchange Participants who have been approved by HKEx to trade stock options. HKEx has regulations to help maintain professional standards amongst its Options Trading Exchange Participants and Options Broker Exchange Participants. One of these regulations is that the Options Trading Exchange Participant or the Options Broker Exchange Participant must have an Options Trading Officer or an Options Broker Officer, as applicable, or an Options Trading Representative or an Options Broker Representative, as applicable, who is qualified to give options-related advice to clients. You should ask to speak to an Options Trading Officer or Options Trading Representative of an Options Trading Exchange Participant or an Options Broker Officer or an Options Broker Representative of an Options Broker Exchange Participant if you wish to obtain more information about trading options.

Some Options Broker Exchange Participants may be restricted to carrying long option positions only. If you trade through these brokers, you will not be able to enter into short positions. Such Exchange Participants are obliged to inform you of any restriction of this nature.

SUMMARY OF THE STOCK OPTION CONTRACT SPECIFICATIONS

Subject
Option Types Contract Size

Expiry Months

 

Trading Hours

 

Tick Size

 

Last Trading Day

 

Standard Strike Prices

 

Introduction of New Series

 

Exercise Style

 

Assignment Method

Specification
Puts and calls.

In most cases, one board lot of the underlying shares which will differ from share to share.

Five in total: the three nearest months as well as the following two quarterly expiry months i.e. options are available with maturity periods of 1, 2 and 3 months as well as up to 6 months and up to 9 months.

Same as those of the underlying stocks.

 

Minimum price fluctuation of HK$0.01 for all options.

Business day immediately preceding the last business day of the expiry month.

Strike Price Interval Between Strikes $0.10 to $2: $ 0.10 *
$2 to $5: $ 0.20
$5 to $10: $ 0.50 $10 to $20: $ 1.00 $20 to $50: $ 2.00 $50 to $200: $ 5.00 $200 to $300: $ 10.00 $300 to $500: $ 20.00 * i.e. possible strike prices are 0.10, 0.20, ..., 1.80, 1.90, 2.00

There will always be at least 5 strike prices for each expiry month with new strikes being introduced, if necessary daily, so as to ensure that there are always at least two series out- of-themoney, one series at-the-money and two series in-the-money for each type (call or put).

American with physical delivery. Same day purchase and exercise permitted. Exercise on last trading day allowed.

Random assignment.

HKEx is issuing this document to market participants or interested parties for the purposes of information only. This document does not constitute investment advice, a recommendation to engage in options trading of any kind or an invitation to enter into any agreement in relation to any investment. HKEx takes no responsibility for the consequences of any investor carrying out options trading. Investors considering the trading of options should consult a professional financial advisor.

July 2001

Market Development, Training and Education Department Derivatives Market
Hong Kong Exchanges and Clearing Limited

17/F Worldwide House
19 Des Voeux Road Central Hong Kong

Tel : 2840 3534
Fax : 2824 4438
E-mail : mktdev@hkex.com.hk Web-site : http://www.hkex.com.hk