Stock Options

Concept of option

Options are a right with deadline. The buyer pays an option premium for the rights granted by the contract. The seller earns the premium for the obligation to honour the contracts.

Stock options’buyer and seller:


Investors can choose LONG (buy) or SHORT (sell) stock options

 

Buyer(holder)-- have rights but no obligation to exercise on or before the expiration date.
Seller(writer)---are obliged to honour the contracts if the holders choose to exercise.

Types of Options:

There are two types of stock options:

(Call Option)

short call      Short Call

Example: Stock A (October) at $90 strike price
Holder has rights to buy the stock at $90 (strike price) on or before October Expect rising of stock price
Writer is obliged to sell the stock at $90 if the holder exercises the contract Expect not rising of stock price

Put Option

Long Put      Short Put

Example: Stock B (October) at $20 strike price
Holder has rights to sell the stock at $20 (strike price) on or before October Expect falling of stock price
Writer is obliged to buy the stock at $20 if the holder exercises the contract Expect not falling of stock price

Stock option is a contract entered by and shared between two parties, a buyer and a seller. Everyone can long (buy) or short (sell) the contract. The buyer has the right, but not the obligation, to buy or sell the underlying asset at predetermined price on or by a predetermined expiry date. On the other hand, the seller has the obligation to buy or sell the underlying asset at predetermined price on or by a predetermined expiry date if the buyer exercises the contract. When you long an option, the purchase price is called the premium. If you short, you receive the premium.

Exercise / Assignment

The owner of an option contract has the right to exercise it, trading the underlying asset at the strike price, called “Exercise”. An option of a seller is exercised by owner, called “Assignment”.

Open a position / Close a position

An open position means that the trader holds a certain quantity of a given financial instrument. In order to close a position, the position must be bought or sold back to the market. So to close a long position, traders would sell the asset back to the market. And to close a short position, the trader would buy the asset. If you bought an option, you must use a "sell to close" order, which is akin to owning a stock that you then sell back into the market, in order to close out the position.

Characteristics of Stock Options

Flexible investment strategy

Stock options can assist investors to make profits in bullish, bearish or stagnant markets.

Hedging with options

Investors can restrict the downside while enjoying the full upside by hedging the underlying assets with options.

Leverage the return

Stock option is derivative, which leverages the investment return.

Low Transaction Fee

The transaction fee for stock option is cheaper than that for the same amount of stocks. Besides, stamp duty is exempted for stock option.

Stock Option

Phillip is one of the earliest option brokers in Hong Kong, engaging in stock option business over ten years, even the first broker to develop the electronic trading platform in Hong Kong. Nowadays, Phillip is still the market marker for the stock option of Tracker Fund (2800), responsible to offer a certain amount of quotes in order to maintain the liquidity in the market. Through the experience of the development in stock option business, our experienced option dealers can assist clients to trade and answer enquires from clients. Moreover, Phillip developed an electronic trading platform for stock option – OATS, which provides a comprehensive service of online trading and real time quote. Besides, Phillip offers a lot of stock option courses, taught by our senior dealers, for clients to learn about our trading platform and option analysis so as to grab the investment opportunities.

Options Advanced Trading System (OATS) is our self-developed electronic trading platform. OATS provide a comprehensive coverage of online trading and real-time option price quotes. Our experienced dealer offer monthly options courses regarding  OATS ‘s trading system and other options knowledges for our clients to capture market opportunities.

Options Advanced Trading System OATS

OATS OATS.NET electronic stock options trading platform is a platform our self-developed platform that offers comprehensive online business transactions, real-time quotes, options price quotations and order price alternation functions. Action now and apply immediately to experience our professional online stock option trading services.
  • Instant Price Quote Service
  • Contracts Transactions Record
  • Profit & Loss 
  • Options position view
  • Instant Dow Jones News
  • Options Delta and Implied Volatility information
POEMS Phillip offer online options trading services to our clients. Clients can trade options online via our POEMS system without additional installation of any software program once clients applied the online trading platform.
  • Conduct options price quote directly to market makers 
  • Direct access to the HKEx’s trading system
  • Free options price quote – 5 price depth and quantities
Mobile We offer Mobile Apps for options trading exclusively, no matter where you are, where you in. You can also smartphone for trading anytime, anywhere.
  • Flexible and comfortable, no matter where you are, where you in, you can also use the smartphone to trade anytime, anywhere.
  • Easy and user friendly, trades are easier than ever before. Now, even if you have been outside, you can use mobile phones to obtain information to trade.
  • Safe and reliable, - using sophisticated wireless encryption technology, POEMS Mobile to ensure your transactions in a safe and secure environment.
Professional Phillip Securities (HK) Ltd. is one of the earliest stock options brokers, we engaged in options business for more than a decade. Our experienced dealers/representatives can understand the clients’ needs and provide related customer services.
Professional Lectures and Workshops – Option group teaching
Phillip offers several stock option lectures and workshops to our investors in which investors can learn about the basic knowledge of option and the related investment strategies, such as combination of options and stock and practical tips for trading options.
option strategy Weekly analysis – option commentaries
Weekly option focus and analysis for deploying the investment strategies
excelrt Excel RealTime automatic trading system, 30-Day free trial
Excel RealTime quotation and trading system, accompanied with Microsoft ® Excel, provides a lot of functions to investors, such as risk data calculation, real time data quotation, automatic trading, etc. For details, please visit http://www.poems.com.hk/zh-hk/phillip-apps/excel-realtime/ http://www.poems.com.hk/zh-hk/phillip-apps/excel-realtime/
查詢請電 股票期權部 22776622 或 電郵至 option@phillip.com.hk 聯絡我們


 

本公司保留更改有關條款及細則之權利,恕不另行通知。如有任何爭議, 本公司擁有最終和不可推翻的決定權。

投資涉及風險,請參閱本公司www.poems.com.hk網頁內的〔風險披露聲明〕。

Features

  • Margin requirement was lower and calculated based on hedging method. Better fund utilization for different trading strategies can be achieved.
  • Actual market risk can be reflected from the hedging profile
  • Margin requirements real time update on OATS
  • Free

3 Popular hedging strategies

『Hedge account』 is for sophisticated investors for setting different trading portfolios’ combination. 3 popular hedging strategies includes :
  1. Bull/bear,call/put spread
  2. Straddle/strangle
  3. Butterfly/condor

Example

Bull put spread

  • Short #1, $90.00, September put option @$2 
  • Long #1 $85.00, September put option @$0.75
  • Premium received : $2 - $ 0.75 = $1.25
  • Potential total loss : $90 - $85 -$1.25 = $3.75
  • Normal margin = $5,400
  • Hedge account margin = $2,470

Account opening requirements

Monthly options commission is $1,000 Or Net equity > $100,000(Net equity requirement is as low as $50,000 in the promotion period*)

*Promotion is valid until 31/12/2019

Account Opening

Fill in the [Options Hedge A/C Form] and return with signed original copy to Stock Option Department.

Click here to download

Author

股票期權部 (Options)
輝立証券

Phone:
852 2277 6622

期權組合 - 合成期貨長倉

Thursday, April 02, 2020 Views1442

當市場處於一個動盪不穩定,社會正處於恐慌憂慮的時候,價格會容易因為市場不同的消息而產生變化。當市場上出現利好的消息,價格會按比例的上升。特別是像現在疫情的期間,如果出現一些疫情受控制的新聞,這將會帶給市場正面的態度。投資者當然會想在這動盪的市場上購買股票捕捉這樣的優勢。但是,如果市場上出現負面的因素,這樣的影響將會是倒退式的下跌。這樣的假設下,投資者不願意手持股票因為股票的風險太大,而投資的回報不足以讓投資者去冒這個險。

 

這樣是否表示如果投資者想要在這樣一個恐慌的環境下投資,就必定要承受無限的風險?就沒有一些特別在這樣疫情的環境下能幫助投資者的工具嗎?其實是有的,市場上充斥著不同的工具各有不同的用處而這篇報導將會介紹的是股票期權。

 

如果投資者選擇直接購買股票來做投資的話,股票會因為價格的變化充滿無限的上升以及下跌的空間。同時,也可以選擇認購期權。這樣投資者能夠限制自己的損失。但這樣 投資者要在開倉時投放期權金,減少投資的可獲利益,且承受股票持手後的爆破風險。

 

另一種方案透過買入“認購期權”以及沽出“認沽期權”。這樣就會形成所謂的“合成期貨長倉”。認沽期權能夠帶給投資者及時的期權金,增加投資者的回報以及減少認購期權的費用。但是這樣也不能夠限制在跌蕩時無線的損失,與持手股票本色的風險相同。

 

一個更加有利的選項就是同樣通過“合成期貨長倉”,但我們可以選擇買入接近等價的“認購期權”和 沽出價外的“認沽期權”。這樣的選擇第一,能夠獲取‘販賣’的期權金來抵銷‘買入’某程度的期權金,使得投資的回報增大。第二,能夠某程度上避免當價格在疫情中暴跌中損失的可能性,確保自己有足夠的反應空間。這樣的一個行為,投資者夠享受當市場偏好時且足夠讓他們願意持手的回報,以低價購入產品,同時在不利好的情況下有適當安全的措施。

 

 

*接近等價的“認購期權”: 價外但個很接近價平

但要切記,這樣不代表一切風險都會被限制,投資者依然在沽出“認沽期權”所以如果產品價格跌到一個程度,還是會出現一定程度的損失。

如上圖所顯示,A圖是普通的“合成期貨長倉”而B圖是透過買入接近等價的“認購期權”和 沽出價外的“認沽期權”。 而下圖可以看出不同的選擇帶來不同的效果。

如執行A的策略,會像持手股票一樣,利益會因為股票價格的原因產生無限的利益或損失。反過來如執行B,就會像圖裡一樣,會有屬於紅色線的下跌緩衝空間。這樣子,投資者不止可以獲取沽出期權金且在市場利好的情況下增大回報,在市場衰退的情況下做到某程度的避險。如股票價格上升,接近等價的認購會被行使,價外的認沽則不會被行使。股票本身的升值加上沽出期權金,投資者會得到豐盛而持續上升的收益。如價格下跌,接近等價的認購不會被行使,價外的認沽也不會被行使。則兩方面的期權金可以做到一個平衡的效果。但好像以上所說,當價格跌破到紅色線以外,依舊會產生無限的損失。所以投資者在執行此計劃之前,必須做好相對應的風險管理與諮詢。

 

例子說明

 

1/4/2020匯豐#5 成交价40.7

 

  1. 買入匯豐#5認購40 :(2.29)
  2. 沽出匯豐#5認沽37: 0.99
  3. 如價格上升到45:認購行使,認沽不行使
  4. 獲利:(0.99-2.29)+(45-40)=3.7(每股)
  5. 如價格下跌到38:雙方面都不行使
  6. 當價格下跌處於(37-40):損失只是(1.3)(每股)
  7. 當價格跌穿37:認購不行使,認沽行使

如跌到35:損失將會是(2.29-0.99)+(37-35)=(3.3)

Risk disclosure statement and disclaimers of Trading Futures and Options
The risk of loss in trading futures contracts or options is substantial.  In some circumstances, you may sustain losses in excess of your initial margin funds.  Placing contingent orders, such as “stop-loss” or: stop-limit” orders, will not necessarily avoid loss.  Market conditions may make it impossible to execute such orders.  There is a possibility that any stop-loss order may be cancelled by a futures exchange due to various reasons including where orders are ‘out of price limits’ during a fluctuating market.  You should closely monitor your orders, as we may be unable to contact you in the event of cancellation.  You may be called upon at short notice to deposit additional margin funds.  If the required funds are not provided within the prescribed time, your position may be liquidated.  You will remain liable for any resulting deficit in your account.  You should therefore study and understand futures contracts and options before you trade and carefully consider whether such trading is suitable in the light of your own financial position and investment objectives.  If you trade options you should inform yourself of exercise and expiration procedures and your rights and obligations upon exercise or expiry. You should study carefully the Disclosure Statements of Local Futures on our website

Account Opening

To open a stock options account, clients should:

  1. Open a margin account or cash account (Custodian) in order to open a stock options account.
    For more details please click here
  2. Enable the POEMS (online trading platform) in order to trade stock options online

Margin Requirement

Clients can receive a premium when they short call or put. When doing so, they must deposit enough money to fulfill the margin requirement.

There are different margin requirements for option contracts with different strike price and expiry date. The margin requirement can be found out from the HKEx web site Client Margin Estimate Reference Table. In case of conflict between the HKEx web site and the option statement, option statements shall prevail.

When there is an intra-day margin call, it is necessary for clients to deposit sufficient money into their options account within the time specified.

For Short positions, kindly remind about the contracts' notional value (Stock value of short positions if contracts is being assigned). Additional margin requirements may require for large short position, clients may need to prepare additional cash as margin requirements for risk control. For details, please contact us.

Reporting Levels and Positions Limits

Where Clients hold open position in Stock Options contracts exceeding a certain level, our Company shall report such holding to the Exchange. Additionally, Clients may not hold positions that exceed the position limits.

For specifics regarding reporting levels and position limits, please refer to the link below:

https://www.hkex.com.hk/Services/Trading/Derivatives/Overview/Trading-Mechanism/Large-Open-Positions-and-Position-Limits?sc_lang=zh-HK#excess

Other fees

Commission

premium x number of shares x 0.25% (min. $100)

HKEx trading tariff

Tier 1: $3

Tier 2: $1

Tier 3: $0.5

Example:

Long 5 lots (2000 shares), HSBC, strike $90, November call, premium $0.7

Premium = 0.7 x 2,000 = $1400

Commission = $100

Trading tariff =5 x $3=$15

Total cost =$1400+$100+$15=$1515

Settlement

The settlement day for stock options is T+1: clients must deposit sufficient margin on day T. Otherwise, the following action could be done to clients without notification.

  1. Stop allowing clients to open positions.
  2. Closing of the clients’ position.
  3. Buying or selling the underlying stock for option assignment.

Clients have to transfer their stocks to their option account for covered call before 3:30 p.m. on day T.

Remarks : Margin requirements varies according to the shares price changes, final margin refer to the day-end stock option statement

Exercise and Assign

If clients would like to exercise their stock options, then please contact Stock Options Department at (852) 2277 6622 before 4:30 pm.

If contracts are exercised / assigned from selling stocks which clients do not own, clients are required to buyback the stock by T+1.

Myth 1: Short Options have infinite risks ?

Answer:  In general, short options are associated with huge or infinite risks. This concept is theoretically correct as the prices of the options’ underlying shares may fall or rise to infinite zero. However, this may not be realistic as there were a hypothesis---You do not make any cut loss action.

Disregarding investors can choose stock options of some blue chips or state-owned enterprises such as PetroChina or HSBC etc. Even if the stock price fell to zero, the stock you are holding is still worthless. But will you wait until the stock dropped to zero before the loss cutting it?

Because of the options’ leverage effect, most traders will abuse the leverage effects and expose themselves for huge risks. In fact, if traded options with proper manner and proper risk management, strictly conduct loss cutting procedures, options is not as general as investors imagined danger.

Myth 2: Short options being assigned need to force buy-in or sell the underlying shares. But I do not have sufficient fund associated.

Answer: Most retail investors may not be able to have 100% of funds at any time ready to buy the underlying shares (Short Put assigned for force buy-in shares at the exercise price),but investorscan sell the shares on the day being short put assigned, and the loss is just the gap in between the selling price and exercise price.

Example:Suppose HSBC price at $119, Investors A short Put current month $120 x 10 lots being short put assigned. Investors A can sell out HSBC at market price $119 after the short put assigned brought of HSBC at $120 x 10 Lots,

Actual losses: $ 120- $ 119 = $ 1 X 10 X 400 = $ 4,000.
A just need to prepare $ 4,000, instead of buying 10 hands HSBC's $ 480,000.

Risk associated is the shares prices drop rapidly after the short put assigned.Investors have to set-up cut-loss prices and apply risk control measurements.

Myth 3: Short options can be assigned anytime and with high risks ?

Answer: In general situation, short options won’t be assigned before the options expired date. Option buyers choose to exercise such options contracts will only get the profit equal to the intrinsic value of the options. If they sell the options in the market usually can achieve higher profits ( the profit comes from the options’ time value). So only a small percentage of the option contracts are assigned in advance. One reminder is : Short call options may be assigned in advance because of the dividends factor. Long options owners may exercise their option contract in advance for dividends collection. Investors have to pay attention to the relationship between the underlying shares’ ex-day and the options.

Myth 4 : Short options need to wait until the contract expiry for premium collection ?

Answer: Options premium can be received once the options were shorted. However, short options need margin deposit, if you have sufficient margin deposit, you can withdraw the option premium anytime. 

Myth 5: Short options need to wait until option expiry date for profit realization?

Answer: Most investors misunderstand that options’ profit can only be realized until holding the options till its expiry. However,investors can close position at any time before the option expiry..In general situation, the shorted options’ prices are closed to zero, that means most options premium were earned until options expired. Investors can wait until option contracts expiry Or can close position for profit realization at once.

Option market maker system

Stock Option market is using the market maker system and market makers have the following responsibilities to maintain market liquidity include:

  • Maintain certain amount of price quote : Bid/Ask
  • Provide price quote after receiving price quotation request

Trading Highlights

  • Stock Option is US style option, which can exercise before expiry date
  • Underlying share settlement (Non-Cash)
  • Option T+1 trading settlement
  • The expiry date of each month is on the 2nd last trading day of that month

Related Links

Stock Option and Warrant

 

Recently, derivative products have become more popular in Hong Kong. Its trading volume continues to increase and Hong Kong is even the largest derivative market in the world. Today, we will introduce two of those derivative products – stock option and warrant and compare their characteristics and differences between them.

Comparison table:

 

  Stock Option (股票期權) Warrant (認股證)
Issuer HK Stock Exchange Specific Issuer
Clearing Guaranteed by the HK Stock Exchange No
Strategy Long & Short Long only
Strike price Various selections One strike price designated by Issuer
Expiry Date Various selections One expiry date designated by Issuer
Market Maker More than one One market maker for each specific warrant

 

From the table above, it shows that trading stock option is more flexible because stock option has more choices with different expiry dates and strike prices. Stock option is also guaranteed by the HK Stock Exchange.

Example

Refer to an example on 11/12/2018

  Stock Option Warrant
Contract HKX 235.00A9 #28002 [JP-HKEX@EC1901B]
Issuer HKEx JP
Strike price HK$235 HK$234.04
Expiry date 1/30/2019  2019-01-25
Price HK$4.98 HK$0.07
    Conversion unit
($0.067 x 100 = HK$6.7)
Trading unit 100 10000

*Source: 11/12/2018, #388 HKD$227

From the table above, it shows that trading stock option is more flexible because stock option has more choices with different expiry dates and strike prices. Stock option is also guaranteed by the HK Stock Exchange.

Transaction Charges

From the table above, buying a warrant is similar to buying a stock option, but the price of stock option is lower than the price of warrant, so it is better to buy a stock option instead of a warrant.

 

Stock Option (股票期權) Warrant (認股証)
1. $10/lot (For Long Open less than 10 lots) 2. Maximum commission is $30000
0.25% of turnover (min $100)  

 

Reminder: transaction charges are subject to relevant terms. For details, please refer to Schedule of Fees and Charges for Services for Stock Option or contact Stock Option department by 2277 6622.

 

Myth 1: Short Options have infinite risks ?

Answer:  In general, short options are associated with huge or infinite risks. This concept is theoretically correct as the prices of the options’ underlying shares may fall or rise to infinite zero. However, this may not be realistic as there were a hypothesis---You do not make any cut loss action.

Disregarding investors can choose stock options of some blue chips or state-owned enterprises such as PetroChina or HSBC etc. Even if the stock price fell to zero, the stock you are holding is still worthless. But will you wait until the stock dropped to zero before the loss cutting it?

Because of the options’ leverage effect, most traders will abuse the leverage effects and expose themselves for huge risks. In fact, if traded options with proper manner and proper risk management, strictly conduct loss cutting procedures, options is not as general as investors imagined danger.

Myth 2: Short options being assigned need to force buy-in or sell the underlying shares. But I do not have sufficient fund associated.

Answer: Most retail investors may not be able to have 100% of funds at any time ready to buy the underlying shares (Short Put assigned for force buy-in shares at the exercise price),but investorscan sell the shares on the day being short put assigned, and the loss is just the gap in between the selling price and exercise price.

Example:Suppose HSBC price at $119, Investors A short Put current month $120 x 10 lots being short put assigned. Investors A can sell out HSBC at market price $119 after the short put assigned brought of HSBC at $120 x 10 Lots,

Actual losses: $ 120- $ 119 = $ 1 X 10 X 400 = $ 4,000.
A just need to prepare $ 4,000, instead of buying 10 hands HSBC's $ 480,000.

Risk associated is the shares prices drop rapidly after the short put assigned.Investors have to set-up cut-loss prices and apply risk control measurements.

Myth 3: Short options can be assigned anytime and with high risks ?

Answer: In general situation, short options won’t be assigned before the options expired date. Option buyers choose to exercise such options contracts will only get the profit equal to the intrinsic value of the options. If they sell the options in the market usually can achieve higher profits ( the profit comes from the options’ time value). So only a small percentage of the option contracts are assigned in advance. One reminder is : Short call options may be assigned in advance because of the dividends factor. Long options owners may exercise their option contract in advance for dividends collection. Investors have to pay attention to the relationship between the underlying shares’ ex-day and the options.

Myth 4 : Short options need to wait until the contract expiry for premium collection ?

Answer: Options premium can be received once the options were shorted. However, short options need margin deposit, if you have sufficient margin deposit, you can withdraw the option premium anytime. 

Myth 5: Short options need to wait until option expiry date for profit realization?

Answer: Most investors misunderstand that options’ profit can only be realized until holding the options till its expiry. However,investors can close position at any time before the option expiry..In general situation, the shorted options’ prices are closed to zero, that means most options premium were earned until options expired. Investors can wait until option contracts expiry Or can close position for profit realization at once.

Stock Options market is using the market maker system and market makers have the following responsibilities to maintain market liquidity includes:

  • Maintain certain % of price quote : Bid/Ask
  • Provide price quote after received price quotation request
  • Stock Options is US style options, it can exercise before its expire
  • Underlying shares settlements (Non-Cash) 
  • T+1 trading settlements
  • 每一張股票期權合約代表1手正股股數
  • Each month’s expiry date is on the 2nd last trading day of each month
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Stock Options Department
Tel : (852) 2277 6622
Email : option@phillip.com.hk

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