Trading Mechanics
Overview
Options Clearing Corporation
the Options Clearing Corporation acts as central counter party to traders trading standardized options contracts.
The OCC, through its members, guarantees every trade, so that traders who trade within the OCC need not in general
have to worry about counter party credit risk.
Over the Counter Derivatives
Options not traded through an exchange are called over the counter derviatives. Over the counter derivatives offer the
flexibility of tailoring the contract to the needs of the buyer. However, there are downsides to this fleixibility.
- The buyer may not be able to sell the contract prior to expiration
- The buyer of the derivative must deal with the credit risk of the seller.
