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Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
Trading Options over the Counter
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Trading Options over the Counter

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Published on

http://www.options-trading-education.com/7047/trading-options-over-the-counter/ …

http://www.options-trading-education.com/7047/trading-options-over-the-counter/

Trading Options over the Counter

Trading options over the counter can be quite profitable. Trading options over the counter also entails risks not seen in standardized options trading. Traders buy options to hedge risk and traders buy and sell options on speculation in search of profits. Both can be reasons for trading options over the counter. Over the counter options are agreements between two trading parties. They are not standardized and there is not secondary market. The contract or strike price is set by the persons involved as are contract expiration dates. The most important and potentially dangerous aspect of trading options over the counter is that there is not a clearing house to provide guarantees of contract performance. This is to say there is significant counterparty risk in over the counter options trading.

Just Like Standardized Trading and Not

Just like trading standardized options, one can buy or sell calls or puts or both when trading options over the counter. Purchasing a call gives the buyer the right to purchase the underlying equity at an agreed upon price. This right persists no matter how high the market price (called the spot price) of the equity may go up. Buying a put gives the buyer the right to sell an underlying equity at an agreed upon price no matter how far the equity it might fall. In no case is the buyer obligated to execute a contract, and he will only do so if it is profitable. On the other hand the sell or a call or put contract is paid for taking a risk. If the price of the equity underlying the options contract performs contrary to expectations the seller can lose significant amounts of money. Here is where the difference between trading options over the counter and trading standardized contracts is important. In standardized options trading there is a secondary market and traders can exit a contract by executing the opposite trade. This is difficult if not impossible in over the counter options trading.

Available Options over the Counter

Because trading options over the counter involved an agreement between two parties, one can trade options on commodities, bonds, stocks, real estate, or various derivatives. Traders agree upon an acceptable expiration date, strike price, and price of the options contract. In addition, settlement terms can be arranged according to the wishes of the two parties and can vary widely.

Inherent Difficulties in Trading Options over the Counter

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  1. By www.Options-Trading-Education.com
  2. Trading options over the counter can be quite profitable.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  3. Trading options over thecounter also entails risks notseen in standardized options trading.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  4. Traders buy options to hedgerisk and traders buy and sell options on speculation in search of profits.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  5. Both can be reasons for trading options over the counter.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  6. Over the counter options are agreements between two trading parties.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  7. They are not standardized and there is not secondary market.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  8. The contract or strike price is set by the persons involved as are contract expiration dates.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  9. The most important andpotentially dangerous aspect of trading options over thecounter is that there is not a clearing house to provide guarantees of contract performance.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  10. This is to say there is significant counterparty risk in over the counter options trading.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  11. Just Like Standardized Trading and Nothttp://www.options-trading-education.com/7047/trading-options-over-the-counter
  12. Just like trading standardized options, one can buy or sell calls or puts or both when trading options over the counter.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  13. Purchasing a call gives the buyer the right to purchase the underlying equity at an agreed upon price.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  14. This right persists no matter how high the market price (called the spot price) of the equity may go up.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  15. Buying a put gives the buyerthe right to sell an underlying equity at an agreed upon price no matter how far the equity it might fall.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  16. In no case is the buyer obligated to execute a contract, and he will only do so if it is profitable.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  17. On the other hand the sell or a call or put contract is paid for taking a risk.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  18. If the price of the equity underlying the optionscontract performs contrary to expectations the seller can lose significant amounts of money.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  19. Here is where the differencebetween trading options over the counter and trading standardized contracts is important.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  20. In standardized optionstrading there is a secondarymarket and traders can exit a contract by executing the opposite trade.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  21. This is difficult if not impossible in over the counter options trading.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  22. Available Options over the Counterhttp://www.options-trading-education.com/7047/trading-options-over-the-counter
  23. Because trading options over the counter involved an agreement between twoparties, one can trade options oncommodities, bonds, stocks, real estate, or various derivatives.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  24. Traders agree upon an acceptable expirationdate, strike price, and price of the options contract.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  25. In addition, settlement termscan be arranged according tothe wishes of the two parties and can vary widely.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  26. Inherent Difficulties in Trading Options over the Counterhttp://www.options-trading-education.com/7047/trading-options-over-the-counter
  27. Traders commonly rely on technical analysis tools to assess market sentiment.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  28. These tools work best in fluid, high volume, and continuous markets.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  29. Technical analysis tools may or may not be of use when trading options over the counter.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  30. Traders may simply need to rely on fundamentals in assessing potential trades.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  31. As mentioned above there isno clearing house for over thecounter trades so, if one party reneges on its obligation there can be problems.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  32. It is wise to specify terms forresolution of a contract if one party does not pay as it may require lawyers and going to court.http://www.options-trading-education.com/7047/trading-options-over-the-counter
  33. Although basic options strategies apply, all of the more profitable optionsstrategies in the world may be of little use if you expecthttp://www.options-trading-education.com/7047/trading-options-over-the-counter
  34. to gain a large amount on awell-chosen options contractand the other party does not abide by the contract.http://www.options-trading-education.com/7047/trading-options-over-the-counter

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