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All stock option contracts traded at HKEx will be cleared through a central clearing house – The Stock Exchange of Hong Kong Options Clearing House Ltd.(SEOCH), a wholly owned subsidiary of HKEx. By novation, SEOCH acts as a counter party to its Participants in relation to each option contract traded on HKEx and manages counter party risk by, amongst other things, margining those Participants daily. It may also impose limits on the size and types of positions them SEOCH Participants may keep. SEOCH is solely engagedin the business of managing risk and contract performance and has no other business function.However, the Clearing House’s role as a counter party only extends to the SEOCH Participants and not to any clients or other counter parties. If an Options Trading Exchange Participant or Options Broker Exchange Participant defaults on any of its obligations to its clients, the client’s only recourse is to the Options Trading Exchange Participant or Options Broker Exchange Participant itself; there is no relationship in regard to options contracts between SEOCH and entities who are not SEOCH Participants, such as a Participant’s client.

Every option is issued on an underlying instrument which can be one of a wide range of products – for example, a stock, a stock index, a commodity futures contract, a currency and etc. In this case, the underlying instruments are exchange-traded stocks. Your broker can inform you which stocks have options traded on them.The strike price, also known as the exercise price, is the price at which the option buyer and seller agree to trade the underlying stock, if the option is exercised.A call option whose strike price is below the market price of the underlying stock is in-the-money. Such an option allows the call holder to buy the shares for less than the current market price. A call whose strike price is above the underlying market price is out-of-the-money. Conversely, a put whose strike price is above the underlying price is in-the-money. This means the put holder can sell the asset for more than the current market price. A put whose strike price is below the underlying price is out-of-the-money.

An option is a contract entered into between two parties, a buyer and a seller. The buyer has the right, but not the obligation, to trade an underlying asset with the seller at a predetermined price, within a certain time. We commonly refer to the buyer as the holder and the seller as the writer. The position of a holder is referred to as a long position and that of a writer as a short position. There are two types of options: a call and a put. A call option gives the holder the right to buy the underlying asset. A put option gives the holder the right to sell the underlying asset. Therefore, an option holder really has an “option” to exercise the right.While holders have no obligations to exercise their rights, writers are obliged to honour the contracts if the holders choose to exercise – however disadvantageous this may be to the writers. When writing options, the writers risk incurring a loss or forgoing a profit.