There is no specific market maker with the lowest quotation for over-the-counter stock options. Individual investors need to make comparisons through institutional company inquiry. The quotations of each securities firm are provided to investors by the inquiry company. You can refer to the quotes from different brokers for comparison before deciding whether to invest.
The following is the basic transaction process of OTC stock options:
1. Inquiry: Investors first enter the code of the stock they are interested in and conduct real-time inquiry. This step will query the options contract details of a specific stock, including trading time, underlying assets, option prices and other information. The content of the inquiry covers various key elements of the transaction, such as the underlying asset of the option contract, transaction time, price, etc.
2. Purchase: If investors believe that the content of the inquiry is in line with their investment plan, they can prepare to purchase the option contract. At this stage, investors transfer the corresponding option fees to the brokerage account and prepare for actual purchase transactions.
3. Buying transaction: Investors can submit purchase instructions to securities firms through limit orders or average price orders. The broker will submit the purchase order to the institution. If it is an offline order, 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 unfilled option fee will be refunded to the investor's account.
4. Exercise and sell: Investors can choose to exercise the option when it expires, or sell the option contract during the period. Like buy transactions, sell transactions can also be ordered via limit orders or average price orders. If the transaction is not completed, investors can cancel the unfilled order at any time and submit it again.
5. Settlement: Based on the investors’ buying and selling information, the brokerage will perform settlement. The profit part will be transferred by the institution to the personal bank account, while the loss part will be borne by the investors themselves.
OTC Options, generally referred to as OTC options, refer to the trading of non-standardized financial options contracts in non-centralized trading venues.
Nature: Its nature is basically the same as options trading on the exchange. The main difference between the two is that there are no restrictions or regulations on the terms of OTC option contracts. For example, the exercise price and expiration date can be determined freely by both parties to the transaction, while option contracts on the exchange are traded on standardized terms. . Participants in the OTC options market can tailor option contracts and proposed prices according to individual needs, and then conduct transactions through OTC options brokers or directly find counterparties.
Options activities under the jurisdiction of the exchange are traded and cleared through the exchange and are subject to regulatory and regulatory restrictions. Therefore, the exchange can effectively track and release to the market data such as transaction price, transaction volume, and number of open contracts. Investors can find this information on the exchange's website.
As for OTC options, it is basically a one-to-one transaction. The participants it involves include only buyers, sellers and brokers, or only buyers and sellers, without a central trading platform. Therefore, the transparency of the OTC options market is low, and only professionals who actively participate in the market (such as investment banks and institutional investors) can have a clearer understanding of market conditions. If ordinary retail investors want to obtain the trading status of OTC options, they need to conduct price inquiries and comparisons with institutional companies.
OTC options are non-standardized financial options contracts purchased through brokers to indirectly obtain profits in the secondary market.
OTC options contracts include the following main elements:
1. Underlying Asset: It can be individual stocks, stock indexes, or commodity futures, etc.
2. Notional Value: The value of the subject matter agreed in the contract, used to determine the nominal value of the contract.
3. Strike Price: The agreed buying or selling price of the subject matter, also known as the exercise price. It is used to calculate the intrinsic value of an options contract.
4. Option Premium: The proportion of option fees charged by brokers to buyers, usually calculated based on the nominal amount of the underlying asset.
5. Contract Term: The validity period of the contract, measured in weeks, months or years.
For example: Assume that the subject matter of the OTC option is Ping An Bank (stock code 000001), the nominal deposit is 2 million yuan, the cost price is 12.5 yuan/share, the option premium is 6%, and the contract The term is 1 month. The buyer needs to pay the brokerage an option fee of RMB 120,000, which is calculated based on the nominal premium and option rate. During the period, if the stock price of Ping An Bank rises, the buyer will obtain stock profits corresponding to the nominal deposit of 2 million yuan from the market.
Note that option fees are different from margin. Margin serves as the trader's capital before the option contract takes effect. The option fee is the fee required to purchase an OTC option contract. Once paid, the ownership belongs to the brokerage. The option fee is equivalent to the cost of purchasing an OTC option contract, rather than a margin model like margin trading and capital allocation. Option fees are used to purchase options, while margin is used to back a position, and they are fundamentally different in nature and purpose.
Although the concept of leverage is mentioned here, it should be noted that options and leverage work on different principles. The profit potential of OTC options is based on the price fluctuation of the underlying asset, rather than on the use of leverage like margin trading or capital allocation. Option fees are usually paid after the contract is purchased and are based on the terms of the contract, rather than being used to expand the position like margin.
Characteristics of OTC options:
OTC options have the "lottery" attribute, allowing you to obtain the opportunity of large fluctuations in the underlying assets with a relatively small investment, which allows you to use Limited cost to participate in the rise or fall of the underlying asset. The leverage effect of OTC options allows you to control a larger value of the underlying asset with a smaller option fee.
OTC options also have "insurance" properties. As the buyer of an option, you receive the right, without obligation, to buy or sell the underlying asset at a specific price by paying a premium. If the price of the underlying asset does not meet your expectations in the future, your maximum loss will be limited to the option fee. Therefore, as a buyer, you have rights with limited risk and predetermined losses.
OTC options generally require lower capital requirements and higher leverage than futures. Fluctuations in the value of futures contracts will have a direct impact on your margin, while the maximum loss for options is the option fee, with limited losses. In addition, the payoff structure of options is non-linear, allowing you to earn varying degrees of gain when the price of the underlying asset rises or falls.
Compared with on-exchange options, over-the-counter options have a wider range of underlying assets, including stock indices, individual stocks, commodities, foreign exchange and other varieties, and their structures are more flexible and diverse. OTC options are often used by institutional investors, while on-market options are more likely to attract individual investors, but their prices are greatly affected by supply, demand and trading factors, and their volatility is high.
Summary: Options are a flexible financial instrument used to hedge risks, provide investment opportunities, and implement a variety of trading strategies.