Stock options and how they can be used to complement stock trading are the focus of a new educational article by Professor Eric Chang, Chair of Finance at The Hong Kong University and director of the universitys Centre for Financial Innovation and Risk Management, and Mr Kevin Cheng, Vice President, Education and Training in Hong Kong Exchanges and Clearing Limiteds (HKEx) Exchange Business Unit.

The article begins by highlighting the resources on the HKEx website that can help investors who are interested in learning more about stock options. The authors then explain how stock investors can use stock options, highlighting three strategies: i) buying put options for price insurance; ii) writing put options to acquire shares at a lower price; and iii) buying call options to retain exposure to a stock after taking profits. After looking at how stock options can be used, the authors turn their attention to the frequently asked question: What are the main differences between stock options and derivatives?

The article also includes a list of the stock options available for trading on the Stock Exchange and their contract specifications.

In their conclusion, the authors warn that stock options, like all investment products, involve risk so investors should understand the product and market fundamentals as well as the risks associated with different strategies before buying or selling options. The authors also point out that investors who are interested in learning more about stock options can seek the assistance of the Stock Exchanges Options Trading Exchange Participants, and they note that investors who understand the product and the market will find stock options trading complementary to their stock trading, challenging and potentially rewarding.

Stock Options to Complement Stock Trading is the latest in a series of educational articles aimed at enhancing public understanding of the cash and derivatives markets and the important role they play in Hong Kong.

The article is available on the HKEx website-www.hkex.com.hk- in the Library section, under the Reports of the Derivatives Market. Past educational articles are also available on the website.