Over-the-counter option

OTC contracts can match an exposure's amount, dates, currency and exercise terms more closely than standard exchange contracts. The flexibility comes with pricing, counterparty, documentation and possible liquidity considerations. Collateral, clearing and regulatory arrangements vary; OTC does not automatically mean unregulated, uncollateralised or incapable of clearing. Compare the all-in premium and credit terms with an exchange-traded alternative. The buyer's option right remains distinct from the seller's obligation, and a tailor-made hedge still needs to match the underlying transaction and its uncertainty.