Why is the margin requirement higher for close-to-expiry options?

Close-to-Expiry options are options that are within 5 trading days to expiry.

At expiry, your position may undergo the following changes:

1. When you have a long call position that is exercised, it will become a long position of the underlying stock, and the account will deduct the cash required to establish the position.

2. When you have a long put position that is exercised, it will become a short position of the underlying stock, and the account will increase the amount of cash corresponding to the short position.

3. When you have a short call position that is assigned, it will become a short position of the underlying stock, and the account will increase the amount of cash corresponding to the short position.

4. When you have a short put position that is assigned, it will become a long position of the underlying stock, and the account will deduct the cash required to establish the position.

To better monitor the risks associated with the possible option exercises on the expiration day, Futu begins to calculate the margin and settlement requirements for options that are in-the-money or close to in-the-money (close meaning within 1% of the exercise price) on the day of expiration. Not having enough funds for the potential exercise, will lead to the account being marked as "dangerous" from a risk control perspective. Customers should ensure the account has sufficient liquidity for option exercise via closing positions or injecting more funds.

In the case that your account is marked as "dangerous", Futu reserves the right to perform the following actions: 1) liquidate your option positions; 2) waive your right to option exercises; 3) execute the option exercise but close the corresponding stock positions afterwards, etc.