What is the operation process of OTC options?

For OTC stock options, there is no specific market maker with the lowest quotation. Individual investors need to compare through the inquiry of institutional companies. The quotations of various brokers are provided to investors by inquiry companies, and investors can compare the quotations of different brokers before deciding whether to invest.

The following is the basic trading process of OTC stock options:

1. Inquiry: Investors first enter the stock code of interest for real-time inquiry. This step will find out the details of the option contract of specific stocks, including trading time, underlying assets, option price and other information. Inquiry covers all key elements of the transaction, such as the underlying assets of the option contract, trading time, price, etc.

2. Purchase: If the investor thinks that the inquiry is in line with his investment plan, he can prepare to purchase the option contract. At this stage, investors will transfer the corresponding option fees to the brokerage account to prepare for the actual buying transaction.

3. Buying transaction: Investors can submit buying orders to brokers through limit orders or average prices. The broker will submit the purchase instruction to the institution. If the order is placed offline, once the price set by the investor is reached, the purchase transaction may be completed within two to three minutes. If the transaction is unsuccessful, the unsettled option fee will be returned to the investor's account.

4. Exercise Selling: Investors can choose to exercise the option when it expires or sell the option contract during the period. Like buying transactions, selling transactions can also be issued in two ways: limit orders or average orders. If the transaction is not completed, investors can cancel the unfinished order at any time and resubmit it.

5. Settlement: According to investors' trading information, the settlement shall be made by the brokerage firm. The profit will be transferred from the institution to the personal bank account, and the loss will be borne by the investors themselves.

OTC option, generally referred to as OTC option, refers to the trading of non-standardized financial option contracts in non-centralized trading places.

Nature: Its nature is basically the same as the option trading of the exchange. The main difference between the two is that the terms of OTC options contracts are not restricted or standardized, such as the exercise price and expiration date, which can be freely decided by both parties, while the options contracts of exchanges are traded in accordance with standardized terms. Participants in OTC options market can customize options contracts and draw up prices according to individual needs, and then trade through OTC options brokers or directly find counterparties.

Option activities under the exchange are traded and liquidated through the exchange, which is restricted by supervision and norms. Therefore, the exchange can effectively track and release data such as transaction price, transaction volume and the number of open contracts to the market. Investors can find this information on the website of the exchange.

As for OTC options, they are basically one-on-one transactions. It only involves buyers, sellers and brokers, or only involves buyers and sellers without a central trading platform. Therefore, the OTC option market is less transparent, and only professionals who actively participate in the market (such as investment banks and institutional investors) can understand the market more clearly. If ordinary retail investors want to get the trading situation of OTC options, they need to make inquiry comparison with institutional companies.

Over-the-counter option is to obtain profits indirectly in the secondary market by buying non-standardized financial option contracts through brokers.

OTC option contracts include the following main contents:

1. The underlying asset: it can be individual stocks, stock indexes or commodity futures.

2. Nominal value: the value of the subject matter agreed in the contract, which is used to determine the nominal value of the contract.

3. Exercise price: the agreed buying or selling price of the subject matter, also known as exercise price. It is used to calculate the intrinsic value of option contracts.

4. Option fee: The proportion of the option fee charged by the securities company to the buyer is usually calculated according to the nominal premium of the subject matter.

5. Term of the contract: the term of validity of the contract, in weeks, months or years.

For example, suppose that the subject matter of OTC option is Ping An Bank (stock code: 00000 1), the nominal premium is 2 million yuan, the cost price is 65438 yuan +02.5 yuan per share, the option premium rate is 6%, and the contract term is 1 month. The buyer needs to pay the option fee of RMB 6,543,800+RMB 2,000 to the broker, which is calculated according to the nominal premium and option rate. Within the time limit, if the share price of Ping An Bank rises, the buyer will get the stock profit corresponding to 2 million yuan of nominal gold from the market.

Note that option fees and deposits are different. Before the option contract takes effect, the margin is used as the trader's fund. Option fee is the fee to be paid for purchasing OTC option contracts. Once the payment is made, the ownership will belong to the broker. Option fee is equivalent to the cost of purchasing OTC option contracts, rather than margin models such as margin financing and fund allocation. Option fee is used to buy options, and margin is used to support positions, which are essentially different in nature and use.

Although the concept of leverage is mentioned here, it should be noted that options and leverage work differently. The profit potential of OTC options is based on the price fluctuation of the subject matter, not on the use of leverage such as margin financing, securities lending or fund allocation. Option fees are usually paid after buying a contract, and the amount is based on the terms of the contract, rather than being used to expand the position like a margin.

Characteristics of OTC options:

OTC options have the property of "lottery", which allows you to get the opportunity of large fluctuations in the underlying assets with relatively small investment, so that you can participate in the ups and downs of the underlying assets with limited cost. The leverage effect of OTC options allows you to control the underlying assets with greater value with smaller option fees.

OTC options also have the property of "insurance". As a buyer of options, you get the right to buy or sell the underlying assets at a specific price by paying the option fee, but you have no obligation. If the price of the future underlying assets does not meet your expectations, your biggest loss will be limited to the option fee. So as the buyer, you have the right, but the risk is limited and the loss can be determined in advance.

Compared with futures, OTC options usually have lower capital demand and higher leverage. The fluctuation of futures contract value will have a direct impact on your margin, and the biggest loss of options is the option fee, and the loss is limited. In addition, the income structure of options is nonlinear, which allows you to get different degrees of income when the underlying asset price rises or falls.

Compared with floor options, over-the-counter options have a wider range of underlying assets, including stock indexes, individual stocks, commodities and foreign exchange, and their structures are more flexible and diverse. Off-exchange options are mostly used by institutional investors, and on-exchange options are more attractive to individual investors, but their prices are greatly influenced by supply and demand and trading factors, and are highly volatile.

Summary: Option is a flexible financial tool, which is used to hedge risks, provide investment opportunities and realize various trading strategies.