On the expiration date, if the option price has an in-the-money value equal to or greater than 1.5% of the strike price, the option will be automatically exercised. The exercise will be accomplished by physical delivery.
For example, you have an AIA 190829 87.50C option and on 29/08/19. And the price of AIA is 90 HKD. The option is in-the-money.
In-the-money value of the option = 90.00 - 87.5 = 2.5.
1.5% of exercise price = 87.5 * 1.5% = 1.3125.
At this point, 2.5 > 1.3125. At the close of the market, this option will disappear from your account and your account will be charged 87,500 HKD but added 1000 AIA shares.
If an account hasn't activated HK Stock Short Selling function, it cannot hold short stock positions resulting from option exercise or assignment. If option exercise in such account requires the delivery of underlying shares, please ensure there are enough underlyings for settlement. Otherwise, we reserve the right to liquidate such option positions at any time based on market conditions.
When you short an option, your counterparty is longing an option. Your counterparty has the right to exercise the option and you have the obligation to be assigned to exercise the option.
When an options assignment occurs, you must sell or buy stock to your counterparty at the price agreed upon on the option. The process is called an assignment.
Generally, in-the-money options will be exercised on the expiration date. If you hold an in-the-money short option on the expiration date, it is subject to assignment.
Note: If an account hasn't activated HK Stock Short Selling function, it cannot hold short stock positions resulting from option exercise or assignment. If option exercise in such account requires the delivery of underlying shares, please ensure there are enough underlyings for settlement. Otherwise, we reserve the right to liquidate such option positions at any time based on market conditions.
