Chapter 04 · Section 4.1
Option Holder
As far as the trading mechanism is concerned there is no difference between a stock exchange and an options exchange. But there is one in another area ...
Assume you are the holder of an exchange traded option. How do you prove that you are the option holder?
a) Every option holder receives a paper which states his rights (just like a bearer share) from the exchange.
b) Every option holder receives a paper which states his rights (just like a bearer share) from the option writer.
c) The exchange must keep a register of all option holders and writers.
d) Your broker enters your position in an account. He, in turn, has an account with the clearing house, or with somebody who has one.
Everyone who has a short options position on the exchange represents a credit risk. The opposite party wants to be sure to have a counterpart that is sure to honour its obligations.
Assessment of credit risk is very time-consuming. Anybody involved in the market therefore wants to deal with a limited number of counterparts only.