Chapter 01 · Section 1.1

The secondary market for OTC options

                       OTC OPTIONS      EXCHANGE-TRADED OPTIONS
 

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

The secondary market for OTC options is:

• a) limited.
  No. Because the secondary market is limited, the market cannot be entered or exited quickly at a price close to the price last traded. Therefore, liquidity is low in that perspective.
  b) very active.

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