Futures & Options:

4. Stock Options:

A stock options is entered into between a buyer and a seller. The buyer (holder) has the right but not the obligation to trade an underlying stock with the seller (writer) at a predetermined price within a certain period of time. A call option gives the holder the right to buy the underlying stock while a put option gives the holder the right to sell the underlying stock. While holders have no obligation to exercise their rights, writers are obliged to honour the contracts if the holders choose to exercise however disadvantageous this may be to the writers. When writing options, the writers risk incurring a loss or forgoing a profit. In turn, they receive a "premium" (i.e. the price of the stock options) from the buyers. The options buyer's exposure is limited to the premium paid to the option. The stock options can be exercised on or before the expiration day and settled by means of physical delivery of underlying stock..

Product descriptions are extracted from the information of the Hong Kong Exchanges and Clearing Limited