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. 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.

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