Options Trading FAQs

If a short call option is exercised, can I settle it with the underlying shares? Do I need to enable this function separately?

Settlement using underlying shares is the default settlement method. You do not need to enable this function.

Why do some US stocks not have options trading?

Longbridge currently supports most US stock options with high liquidity, and those that are not available may have relatively high liquidity risks. We will evaluate the risk of different products from time to time and plan to increase the number of options for trading.

Will the underlying shares be automatically covered after selling a call option (short call)?

Generally, selling a call option (short call) does not freeze the underlying position and your shares can still be sold. However, on the expiration date of the option, the underlying shares will be covered if the option reaches within 5% of the out-of-the-money, and the underlying shares will be locked and will be unable to be sold.

What will affect the change in options margin?

Apart from the price volatility of the option itself and the price volatility of the underlying stock, the margin requirement will also be affected by the expiry date of the option.

If I have sufficient margin but I do not close the option position on the expiry date, will it be automatically exercised?

It will vary on a case by case basis. Options with intrinsic value at expiration will generally be automatically exercised. However, if the margin is insufficient, we will execute forced selling on the expiry date as deemed appropriate.

For example: You need to have enough underlying shares to support the exercise for long puts and short calls. Generally, if you do not have enough shares, the option will be liquidated; as for long calls and short puts, the in-the-money options may be exercised if the margin is sufficient and the customer does not close the option position on the expiry date. However, the options will generally be forced sold if there are not enough funds in your account.

Will the exercise fail if there are not enough funds in my account? If so, will the exercise fees still be deducted?

Generally, we will raise the margin requirement of the option in advance in case it fails to be exercised. However, the option with insufficient margin may be forcedly sold by us.

I hold the underlying shares of XX stock. Why do I need a maintenance margin even after selling call options on XX stock?

Longbridge currently does not support covered call strategy during the margin computation. The margin of the options is computed on an individual basis. Therefore, maintenance margin is still required even if you hold a stock and sell the call option (short call) of the same stock.

This is designed from the perspective of the user’s financing buying power. Generally, the options margin rates are low, so the financing buying power of the underlying shares can be released after options margins are calculated individually.

Do Longbridge support margin reduction for US option covered short calls?

Longbridge currently does not support covered call strategy during margin computation. Hence, maintenance margin is still required even if you hold a stock and sell the call option (short call) of the same stock.

Note: As our on-going effort to enhance client's trading experience, various option strategies, such as covered call, straddle etc, are currently under development and will be released in the near future.

How do I know if the initial margin of my options position is insufficient? Do I need to calculate the margin on my own?

Options margin can be affected by many factors such as stock price, your holdings, volatility, liquidity risk, etc. Manual computation by client is unnecessary. In the event that your margin is insufficient when opening a position, you will get a prompt of “The order amount exceeds the maximum buying power”, which can be viewed in the order details.

Will in-the-money options be automatically exercised? What is the trigger point?

In the case of put options, as long as the in-the-money reaches USD 0.01, the options will have a chance to be exercised. It will vary on a case by case basis.

As a call option seller, will I have a short share position?

Short-selling assignments are currently not supported. If you short a call option without holding the corresponding underlying stock and it becomes “in-the-money,” you will need to close the option on or before the expiry date. Otherwise, the option will be force sold.

Do all types of options trading require margin?

Long call/put options require an option premium; short call/put options require a maintenance margin.

Is it true that an options trade will not result in liabilities if I only have a buy position as the holder?

ITM long calls and short puts may result in liabilities if there is insufficient funds to exercise the options; long puts and short calls will be forced sold on the expiry date, so you will not have a short stock position under normal circumstances.

If an option expires and is exercised, will there be a case resulting in a short stock position?

Under normal circumstances, your account will not have a short stock position.

Can the premium/margin between options be offset?

Margin offset is currently not supported. For example, if you hold a long call and a short call on the same stock, the margin and premium will be calculated in full.

Can I use my commission coupons for options trading?

No, commission coupons cannot be used for options trading.