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Understanding Stock Options

UNDERSTANDING
STOCK OPTIONS
(AND THEIR RISKS)
A. INTRODUCTION
2
B. THE CHARACTERISTICS OF
3
EXCHANGE TRADED STOCK OPTIONS
What is an Option?
4
Pricing of Stock Options
6
Uses of Options
9
Exchange Traded Options
11
Exercise and Settlement
13
Capital Adjustments
15
C. COMMON OPTION STRATEGIES
16
D. THE RISKS OF EXCHANGE TRADED
23
STOCK OPTIONS
Risks faced by Option Holders
23
Risks faced by Option Writers
25
Other General Risks
27
E. HONG KONG EXCHANGES AND
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CLEARING LIMITED’S STOCK
OPTIONS MARKET
Trading System and Products Traded
31
Options Exchange Participants
31
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