OTC Options
Contents
Demystifying OTC Options: A Comprehensive Guide
Understanding OTC Options
What Sets OTC Options Apart?
Dive into the world of over-the-counter (OTC) options, exploring their unique characteristics and why investors turn to them when listed options fall short. Learn about the absence of standardization in strike prices and expiration dates, allowing participants to tailor contracts to their specific needs.
The Dynamics of OTC Option Trading
Discover how OTC options facilitate direct transactions between buyers and sellers, bypassing the restrictions imposed by traditional exchanges. Explore the role of brokers and market makers in regulating OTC option markets and ensuring compliance with government agencies like FINRA.
The Flexibility of OTC Options
Explore how OTC options offer unparalleled flexibility to hedgers and speculators, allowing them to precisely customize their positions without the constraints of standardized contracts. Learn about the absence of disclosure requirements and the associated risks of counterparties failing to fulfill their obligations.
Managing OTC Option Positions
Closing OTC Options Positions
Understand the unique challenges of closing OTC options positions due to the absence of a secondary market. Learn about the necessity of offsetting transactions to nullify the effects of the original trade, contrasting with the ease of selling exchange-listed options on traditional exchanges.
Evaluating OTC Option Default Risk
The Impact of OTC Defaults
Explore the ramifications of OTC defaults, drawing lessons from historical events such as the financial crisis of 2008 and the collapse of Lehman Brothers. Understand how OTC defaults can propagate throughout the marketplace, exposing counterparties to unforeseen risks and contributing to systemic crises.