Rights & Obligations of Stock Options

• Stock options buyers
  • Call option buyers have the right to buy the underlying shares at an agreed price (exercise price) on or before a certain date (expiry date)
  • Put option buyers have the right to sell the underlying shares at an agreed price (exercise price) on or before a certain date (expiry date).
  • Option buyers are required to pay a premium but not a deposit.


• Stock options sellers
  • Call option sellers have the obligation to sell the underlying shares at an agreed price (exercise price) on or before a certain date (expiry date).
  • Put option sellers have the obligation to buy the underlying shares at an agreed price (exercise price) on or before a certain date (expiry date)
  • Option sellers can receive premium but may need to provide additional deposits.

 

Characteristics of stock options

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


• Hedge related assets
  Investors can use options to hedge market risks.


• Leverage
  Stock option is derivative, which can act as a leverage to increase the investment return.


• Low transaction cost
  Stock option transaction costs is cheaper than trading the same number of shares. Stamp duty is not required for trading stock option.