What should I be aware of when exercising HK options?

1. How to exercise HK options?

On the expiration date, if the option price has an in-the-money value equal to or greater than 1.5% of the strike price, the option will be automatically exercised. The exercise will be accomplished by physical delivery.

For example, you have an AIA 190829 87.50C option and on 29/08/19. And the price of AIA is 90 HKD. The option is in-the-money.

In-the-money value of the option = 90.00 - 87.5 = 2.5.

1.5% of exercise price = 87.5 * 1.5% = 1.3125.

At this point, 2.5 > 1.3125. At the close of the market, this option will disappear from your account and your account will be charged 87,500 HKD but added 1000 AIA shares.

2. Is it possible that the exercise might not be successful?

If your account hasn't activated HK Stock Short Selling function, it cannot hold short stock positions from option exercises or assignments. In that case, if exercising options that are in the money results in short stock positions in those accounts, you must either close the options, allow them to lapse, or purchase enough underlying assets for settlement before exercising the options. Otherwise, we may liquidate these options at any time depending on market conditions.

3. What is options assignment?

When you short an option, your counterparty is longing an option. Your counterparty has the right to exercise the option and you have the obligation to be assigned to exercise the option.

When an options assignment occurs, you must sell or buy stock to your counterparty at the price agreed upon on the option. The process is called an assignment.

Generally, in-the-money options will be exercised on the expiration date. If you hold an in-the-money short option on the expiration date, it is subject to assignment.

Note: If your account hasn't activated HK Stock Short Selling function, it cannot hold short stock positions from option exercises or assignments. If exercising your long put options or being assigned on your short call options would result in short stock positions in your account without HK stock short selling authorization, you must voluntarily close such options positions, apply for exercise waiver, or purchase sufficient underlying stocks for settlement before the contract expiration date. Otherwise, Moomoo MY reserves the right to liquidate such options or short stock positions.