Chapter 04 · Section 4.1

Options- the Mechanics of a Purchase

Client A would like to buy an options contract. He contacts and instructs his broker, Broker A, to place a buy order.

Broker A, being a member of the exchange, places the buy order on the floor of the exchange on behalf of client A. Depending upon the price, quantity and type of order, an order to sell the options contract, presented on the floor of the exchange by broker B acting on the instructions of client B, may be matched with client A's buy order.

If, for whatever reason, there is no sell order to match the buy order, a dealer might step in to buy on his own account. The dealer takes a position, based on his market outlook, in hope of making an offsetting transaction with another client or dealer at a profit. That is why, on any exchange, there are dealers who buy and sell for their own accounts (or broker-dealers who trade on behalf ofÿcustomers and for their own accounts).