Option strategies

1. Are option strategies supported for HK Stocks?

2. Introduction and the use of Covered Call

3. Introduction and the use of the options spread

4. Introduction and the use of options straddle


1. Are option strategies supported for HK Stocks?

We currently support common option strategies such as covered call, vertical spreads, straddles, and strangles. We plan to offer the corresponding option combination quotes and trading capabilities in the future.


2. Introduction and the use of Covered Call

2.1 What is a Covered Call strategy?

A Covered Call strategy consists of a stock position and a short call option position. If you hold the underlying stock and short the corresponding call option, you have created a Covered Call strategy.

It should be noted that the number of shares of stock position must be the at least the same as the number of shares implied by the option contract size. Hong Kong equity options have varying contract sizes of 100, 500 and 1000 shares of the underlying stock.

In other words, if you short a call option of company ABC, and the contract size of that option is 100, then you need at least 100 underlying shares to form a Covered Call strategy.

2.2 What is the margin requirement for a Covered Call strategy?

Generally, margin requirements for Covered Call position is lower. Margin is only required for the underlying stock position in a Covered Call strategy with the margin requirements for the option position waived. When you hold the underlying stock and place an order to sell the corresponding call option contract, the order has no margin requirement and therefore will not impact your purchasing power.

Same as account financing, option strategy margin reductions are subject to internal risk control parameters. If your short call option margin is not lowered, the reason may be that you do not hold enough underlying stocks, have orders to sell the stocks, or have exhausted your margin reduction quota.


3. Introduction and the use of the options spread

3.1 What are options spreads? 

Options spread strategy mostly consists of two call options or put options.

  ● Vertical spreads involve two options with the same expiry dates but different strikes

  ● Calendar spreads involve two options with the same strikes but different expiry dates

  ● Diagonal spreads involve two options with different strikes and expiry dates

3.2 What is the margin requirement for options spreads? 

Options spreads enjoy lower margin requirements. The amount of margin required depends on the respective margin requirements of the two options, and the strike price difference between the options.


4. Introduction and the use of options straddle

4.1 What is a options straddle? 

Options straddle strategy consists of a call option and a put option with the same expiry date.

  ● Straddles involve two options with the same strike price

  ● Strangles involve two options with different strike prices

4.2 What is the margin requirement for options straddles?

Options straddles may enjoy lower margin requirements. The amount of margin required depends on the respective margin requirements of the two options.