Unforseen

The terminology should be the "Seller refuses or is unable to deliver" . The sale ( or writing ) of the option is already done at the inception, only delivery comes into doubt

CP is absolutely correct that not all options are traded through an accredited exchange. There are many banks that trade OTC options ( particularly currency or rate options ) , in this case your counterparty (i.e. the bank ) is known to you and poses a credit risk to you as the holder of the option.

For options traded thru an exchange , you don't know who the counterparty is and you don't have to. The exchange eliminates credit risk for the option buyers by guaranteeing the trade



Edited 1 time(s). Last edit at Sunday, March 27, 2011 at 10:46AM by janakisri.