Assume that the customer holds an option position FUTU 210514 150C, and there is no other positions or excess cash. On the expiration date, the underlying price of FUTU is $200. Assuming that the option has no time value, then the value of the client's option holding at this moment is: (current price - exercise price) * contract size * number of positions = (200 - 150) * 100 * 1 = $5000.The client's equity loan value (ELV) = initial margin requirement (IM) = $5000, where all of the ELV comes from the option holding.
Exercising this in-the-money option at expiry means that the value of the option goes to zero, and correspondingly a position of the underlying stock is opened at the exercise price. In the above example, the option value of $5,000 goes to zero, and 100 shares of FUTU are bought at a price of $150, so the account will have a cash amount of -100 * 150 = -$15,000, and a market value of 100 * 200 = $20000. The account ELV remains unchanged before and after the exercise, which is still 20,000 - 15,000 = $5,000. However, the initial margin requirement has changed from $5,000 for a single option to the initial margin requirement for 100 shares of the underlying stock, which is 20,000 * 50% = 10,000 (assuming the stock margin requirement is 50%). Because of this increase in the margin requirement, the account is deemed "insufficient" in funds needed for the exercise
Therefore, the client needs to supply the shortfall here which is 10,000 - 5,000 = $5,000 in order to ensure a successful option exercise.