The over-the-counter market (or OTC, to its friends) provides a place to buy and sell not-quite-ready-for-prime-time stocks. From large foreign companies that can't quite get listed on the NYSE or NASDAQ, to up-and-coming firms who can't make the listing requirements for the big boys yet, to downright sketchy situations that any honest broker would advise you to stay away from, the OTC exists as a place for, let's say, more offbeat equity selections.
It does the same thing for options. In basic definition, an OTC option is an option contract that trades on the over-the-counter market rather than the more prominent option exchanges. These contracts offer far more...well, options.
OTC options are worked out individually between buyers and sellers. There are no standardized expiration dates or pre-set strike prices. Because these options are so specific, they don't trade on a secondary market. However, the freedom the OTC offers provides more flexibility and a wider range of possibilities for exotic structures.
See: OTCQX.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
Up Next
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...
Over the counter refers to a trade transacted within a network of other dealers who are all trading stocks.