{"id":7801,"date":"2025-07-15T07:51:33","date_gmt":"2025-07-15T07:51:33","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/?post_type=glossary&p=7801"},"modified":"2025-07-15T07:51:34","modified_gmt":"2025-07-15T07:51:34","slug":"over-the-counter-otc-options","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/over-the-counter-otc-options\/","title":{"rendered":"Over-the-Counter (OTC) Options"},"content":{"rendered":"

OTC options<\/strong> are custom-made financial contracts<\/strong> between two parties. Unlike stock market options that are traded on an exchange (like NSE<\/a> or BSE<\/a>), OTC options are private deals<\/strong>, usually done between big companies, banks, or financial firms.<\/p>\n\n\n\n

Think of it like this:
It’s like tailoring a suit instead of buying a ready-made one. The two parties agree on the size, style, price, and rules — all customized.<\/p>\n\n\n\n

Key Features of OTC Options<\/h2>\n\n\n\n
    \n
  1. Not traded on stock exchange<\/a>s<\/strong><\/li>\n\n\n\n
  2. Flexible terms<\/strong> – you decide expiry date, price, and type<\/li>\n\n\n\n
  3. Mostly used by institutions<\/strong>, not retail investors<\/li>\n\n\n\n
  4. Higher risk<\/strong> – no regulator like SEBI<\/a> to monitor every deal<\/li>\n\n\n\n
  5. Privately negotiated<\/strong> – often done via broker<\/a>s or directly<\/li>\n<\/ol>\n\n\n\n

    Types of OTC Options<\/h2>\n\n\n\n
      \n
    1. Call Option<\/strong>
      The buyer gets the right to buy<\/strong> an asset at a fixed price in the future.<\/li>\n\n\n\n
    2. Put Option<\/strong>
      The buyer gets the right to sell<\/strong> an asset at a fixed price in the future.<\/li>\n\n\n\n
    3. Exotic Options<\/strong>
      These are advanced, customized contracts like barrier options or digital options. They’re mostly used by experts and companies with unique needs.<\/li>\n<\/ol>\n\n\n\n

      Benefits of OTC Options<\/h2>\n\n\n\n
        \n
      1. Flexibility<\/strong>
        You can set your own rules — expiry date, strike price, and more.<\/li>\n\n\n\n
      2. Tailored Hedging<\/a><\/strong>
        Useful for businesses to protect against specific risks (like currency or         commodity<\/a> price changes).<\/li>\n\n\n\n
      3. Wider Choices<\/strong>
        You’re not limited to the standard types offered by exchanges.<\/li>\n\n\n\n
      4. Confidential<\/strong>
        Since deals are private, they remain off the public radar.<\/li>\n<\/ol>\n\n\n\n

        Real-Life Example:<\/h2>\n\n\n\n

        A sugar exporter in India is worried that the price of sugar might fall.
        They create an OTC put option<\/strong> with a bank, allowing them to sell sugar at a fixed price<\/strong>, even if market prices fall.
        This protects their earnings – like a safety net.<\/p>\n\n\n\n

        Risks of OTC Options<\/h2>\n\n\n\n