What is ‘Dealer Option’
An option issued on the physical inventory of a commodity. A dealer option is typically issued by companies that buy, sell or otherwise use a commodity in conducting business. This type of option is not traded on an exchange, meaning that it is traded as an over-the-counter security, and thus are less subject to scrutiny and regulation.
Explaining ‘Dealer Option’
These options are typically written by firms such as clearing houses, which hold the physical commodities and offer them to the public on the over-the-counter market. While dealer options exist outside of traditional trading markets, their sale is still heavily scrutinized because they represent a contract between parties.
Further Reading
- On dealer markets under competition – www.jstor.org [PDF]
- Demand-based option pricing – academic.oup.com [PDF]
- Do competing specialists and preferencing dealers affect market quality? – academic.oup.com [PDF]
- The economic determinants of interest rate option smiles – www.sciencedirect.com [PDF]
- The failure mechanics of dealer banks – www.aeaweb.org [PDF]
- Stock market quality in the presence of a traded option – www.jstor.org [PDF]
- Trades outside the quotes: Reporting delay, trading option, or trade size? – www.sciencedirect.com [PDF]
- Informed trading and option spreads – papers.ssrn.com [PDF]
- Does variance risk have two prices? Evidence from the equity and option markets – www.sciencedirect.com [PDF]
- Using option prices to estimate realignment probabilities in the European Monetary System: The case of sterling-mark – www.sciencedirect.com [PDF]
