OTC Derivatives

An Over-The-Counter (OTC) derivative is a contract in which the terms — such as size, underlying quality and expiration date — are individually negotiated between counterparties.

The most common OTC products include options and swaps. OTC call options, for example, are often utilized by call overwriters to enhance yield on concentrated positions, either to retain confidentiality or because listed options do not exist. OTC swaps are often used to gain leverage or complement long/short relative value strategies.

OTC products are generally used for:

  • Alpha enhancement
  • Hedging and monetization
  • Investment and leverage

Below are some of the products Bear Stearns frequently structures and trades for clients:

Alpha Enhancement Products
  • Correlation swaps
  • Dispersion trades
  • Dividend swaps
  • Index reconstitution trades
  • Variance swaps
Hedging and Monetization Products

  • Accelerated Share Appreciation Strategy (ASAP)
  • Collars and put spread collars
  • Contingent forward sale (CFS)
  • STAMPS (pre-paid variable share forward)
Investment/Leverage Products

  • Exotic options
  • Index, basket or sector options
  • Single stock options
  • Structured notes
  • Total return swaps
  • Options on Correlation and Volatility
  • Point Swaps