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Suppose I buy a derivative (option, future, swap, ...) now from some party. As specified by the derivative, sometime in the future, I will buy or sell the underlying asset of the derivative. I wonder if the party with whom I will trade for the underlying asset in the future is the same as the party from whom I buy the derivative now? In other words, if a derivative and its underlying asset are traded between the same two parties?
Thanks!
This depends on whether the "some party" is a specific institution or individual (e.g. a bank) or a central counterparty (e.g. the Options Clearing Corporation). In the first case, the answer is yes. In the second case, the central counterparty is merely an intermediary, and derivative exercises are randomly assigned. This FAQ may help you understand.
Not necessarily. I own a stock and sell a covered call. You happen to be the party that buys that call. At some point, the stock drops and so does the price of the call. I decide that Since, in effect, I am short a call in my margin account, I've made enough profit that I'll but it back. So I put in a buy-to-close order. You, on the other hand, feel time is on your side and don't wish to sell me my call, so someone else is on the other side of that trade.
When the stock triples, and you decide to exercise your option, you are getting the stock of someone else, not me, the original seller.
In the end, the other side of these positions will likely trade far faster than you or I would be trading them. The original seller will not be on the other side of the trade when it unwinds.
