OTC options

A

Aquarians

Do you know if / where I can trade OTC options?

For instance buying or selling butterfly strategies as one "product", with bid and ask prices and volumes, like on a regular exchange.

Secondly, I'd need API/automated access to such an OTC exchange. Just like I'm using the API of Interactive Brokers now.

And thirdly, I need two particular products, which may not exist yet. What would it take to list a new product, in case it doesn't exist yet? I suppose it takes a broker who's willing to do that, but what does such broker need to do? Does it need legal approval, compliance checks, whatever?
 
Also, I'd like you to comment on the particular type of OTC instruments I have in mind. If they exist already, I'd appreciate if someone would tell me where I can trade them. If not, I'd appreciate your thoughts and telling me weather or not you would be interested in trading them.
 
What is an example of an OTC option or spread that you would look to do and why can't that be replicated with listed options? I know years ago the big bank trading desks were doing a lot of knock in, knock out spreads, but the vig was enormous. They basically priced them to never lose money. And to my knowledge, you need a big balance sheet for these, the desk marks these each day and there is likely no automation. I'm not sure who does these any more with Dodd Frank.
 
So, what I have in mind are "capped" options and CFDs (or futures).

Let's just cover a capped future, as options are similar. The current exchange-traded contract has no bound on the upper side. The down side has a natural bound, as the stock price cannot drop below zero. But on the upside, it can not just double but I've seen stocks raising 40x times in a short time. That's bankruptcy for me if I'm forced to pay in full.

So what I want is a "capped" future which has cash settlement but on the upside is limited to the same swing as on the downside. So the payout is min(abs(spot - strike), 2 * strike).
 
Aquarians said:
So, what I have in mind are "capped" options and CFDs (or futures).

Let's just cover a capped future, as options are similar. The current exchange-traded contract has no bound on the upper side. The down side has a natural bound, as the stock price cannot drop below zero. But on the upside, it can not just double but I've seen stocks raising 40x times in a short time. That's bankruptcy for me if I'm forced to pay in full.

So what I want is a "capped" future which has cash settlement but on the upside is limited to the same swing as on the downside. So the payout is min(abs(spot - strike), 2 * strike).
More...

So you are asking about OTC options on futures not equity options. You can still cap you losses with an option spread or buy an OTM call vs the futures. When you deal with a desk, they will price an OTC option vs what that will cost but want a little more vig. Many FCMs have trading desks that will price these or you can find a broker with Clearport, they can find the other side for you. I don't expect this will be automated. What you can do is use the RFQ system on the CME to create your spread, ask for a market from other MM, then you can trade that electronically without a broker.
 
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