OTC Options

Over-the-counter (OTC) options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date. OTC options are not traded on an exchange, but rather are negotiated directly between two parties. This can make them more flexible than exchange-traded options, but it also means that they can be more difficult to trade and may have less liquidity.

There are two main types of OTC options: calls and puts. A call option gives the buyer the right to buy the underlying asset at a specified price, called the strike price. A put option gives the buyer the right to sell the underlying asset at a specified price.

The price of an OTC option is determined by a number of factors, including the strike price, the underlying asset, the time to expiration, and the volatility of the underlying asset.

OTC options can be used for a variety of purposes, including hedging, speculation, and arbitrage. Hedging is the use of options to protect against the risk of a price change in the underlying asset. Speculation is the use of options to profit from a price change in the underlying asset. Arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from a difference in price.

OTC options can be a complex financial instrument, and it is important to understand the risks involved before trading them.