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So I have a degree in Economics and Finance, but have not worked in the finance space - instead working in industry. This means that while I have a really sophisticated understanding of derivatives/options pricing and how markets work, I don't have any experience of the mechanics of how you actually place trades.

I recently tried to buy a put option on a US hedge fund called Oxford Lane Capital, correctly believing that this price would fall because they predominantly own low-grade corporate debt. However, every high street broker I approached in the UK basically laughed at me when I asked them to get me such a put option.

My question is - how do I actually physically trade sophisticated financial instruments as an individual person? How do people in the City/Wall Street do it? As in, what is the actual practical process - software you need to use, whether you need/it's desirable to have a Bloomberg terminal, etc. Do you need to use a prime broker?

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There do not appear to be any exchange-traded options on OXLC: https://www.nasdaq.com/market-activity/stocks/oxlc/option-chain

So any options would need to be over-the-counter, which retail brokers are probably not equipped or willing to set up or help you find a counterparty.

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  • OK - that makes sense. So then my question is - how does one trade said OTC derivatives? Do you need to use a prime broker? Is there some way you can do your own transactions with other parties? Apr 30, 2020 at 14:53
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US hedge funds are not publicly traded. Therefore, there are no exchange traded options for Oxford Lane Capital. That only leaves the OTC market.

Here are the bullet points from the Investopedia artcle: What are OTC Options?

  • OTC options are exotic options that trade in the over-the-counter market rather than on a formal exchange like exchange traded option contracts.
  • OTC options are the result of a private transaction between the buyer and the seller.
  • OTC option strike prices and expiration dates are not standardized, which allows participants to define their own terms, and there is no secondary market.

  • There is no standardization of strike prices and expiration dates, so participants essentially define their own terms and there is no secondary market. As with other OTC markets, these options transact directly between buyer and seller.

I recently tried to buy a put option on a US hedge fund called Oxford Lane Capital, correctly believing that this price would fall because they predominantly own low-grade corporate debt. However, every high street broker I approached in the UK basically laughed at me when I asked them to get me such a put option.

The reason that the brokers laughed at you is because it's not worth their time to 'get me such a put option'. These OTC transactions are for counterparties who are dealing in size. Then, the commission is worth their effort.

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