Do options have credit risk?

CFA Level II
#1

Forwards and swaps have credit risk. Futures do not because they’re traded on an exchange. What about options?

#2

Options don’t either–they have a clearinghouse just like futures.

#3

options are like futures…

#4

got it, thanks for the quick response

#5

but many (most?) options the readings refer to are OTC or negotiated directly… so be careful.

#6

i think i reember from level 1 derivs that swaps/forwards were otc/had credit risk and futures were clearinghouse/no credit risk and options could go either way

#7

actually i was in wrong forum when i gave my answer but i think it may be accurate

#8

soxboys21 Wrote: ------------------------------------------------------- > Options don’t either–they have a clearinghouse > just like futures. Do futures have a small credit risk (since m2m doesn’t happen instantenously)?

#9

Nope, the clearinghouse is too big to fail!

#10

maybe a negligble amount but for purposes of the exam id say no.

#11

long position in a swaption (for example, payer swaption) is exposed to potential credit risk, the short position doesn’t.

#12

there are 2 kinds of options. Exchange traded and OTC - OTC has credit risk.

#13

The CBOE would be saddened by this post :wink:

#14

Forwards are basically OTC futures…that’s why they have credit risk. Anything OTC has credit risk.