Chapter 01 · Section 1.1

Guarantee

                       OTC OPTIONS      EXCHANGE-TRADED OPTIONS
 

Contract Terms          negotiated         standard
Delivery                perhaps 50%        less than 10%
Trading                 by arrangement     centralized
Credit Risk             .........          clearing house
Liquidity               .........          generally high
Margin calls            .........          minimum margin regulated

An OTC options contract is guaranteed:

• a) by the counterpart, through a bank guarantee.
  No. Although this may be possible if negotiated, generally the counterpart does not post any additional performance guarantee.
  b) by no one. The parties assume all credit risks.
  c) by the exchange clearing house.

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