This only applies to options that do not have marketable equivalents since margin can be marked to them.

I've never been able to find this on my goog.

How is margin typically calculated for OTC equity options? I guess mostly, in the contract, how is IV determined?

Also, are the OTC equity option markets liquid enough to provide "constant" bids and asks for "standardized" (whatever that is) contracts?

Does the same go for cash-settled options? Are cash-settled options as liquid as their deliverable counterparts?


Are the platforms (if they even exist) as well structured as your common broker java platform, or is everything ad hoc, bulletin board, over the phone?


1 Answer 1

  • Margin is determined by those who are in the business of settling options contracts. In the OTC that would be those who make markets in OTC options. (Subject to regulatory requirements if imposed)

  • IV is determined by market forces, supply and demand. The same applies to options written on bananas and chimps.

  • liquidity depends again on supply and demand of the specific product. There is no "standardized" way to determine this. FX OTC options on the liquid pairs are more liquid than anything listed in this particular space. In Asia, most equity options are traded OTC (you can count the number contracts on one hand that change hands in listed options at the TSE at any given day). Other OTC options, especially exotics (such as PRDCs) trade sometimes 4-5 times in a week even at tier 1 houses in Tokyo.

  • cash-settled or deliverable depends on the agreement between the OTC counter parties. If I want to exercise the underlying of my ITM call options in gold delivered into my vault then I can ask Goldman to do so (I am sure they will happily oblige for a negligible add-on fee).

  • $\begingroup$ thanks freddy. you mind addressing my edit? $\endgroup$
    – user3232
    Commented Apr 7, 2013 at 17:14
  • $\begingroup$ @JoeCoderGuy, not much to say here. There are platforms depending on asset class such as Barx fx OTC options but most often such platforms are just presentation platforms and are at best connected to a trading system or oms. Other times quotes are just send over Bloomberg chat or Bloomberg messages. On the retail side SaxoBank is one of the very few if not only institution that shows publicly accessible OTC fx option quotes. $\endgroup$
    – Matt Wolf
    Commented Apr 7, 2013 at 23:36

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