Cabinet trade, also known as Cab or Cabinet Price, allows options traders to liquidate deep-out-of-the-money options by trading the options at a price equal to less than one tick, this often amounts to a price one half of one percent of the face value. A cabinet trade is used as the final nail in the coffin of what is more or less a useless option in order to help recoup a fraction of the losses and is the lowest possible tradable price for the option. It should also be noted that a cabinet trade cannot be used to initiate short or long positions. It’s basically an “end all be all” last resort off-market transaction. A cabinet trade can only be made at a closing bid.

What is Accomodation Trading?

A cabinet trade is considered an accommodation trade. An accommodation trade is a type of trade in which one trader accommodates the other by entering a non-competitive purchase or sale order. This most often occurs when two traders are participating in what would be considered illegal trading. An example of an illegal accommodation trade would be two traders agreeing to sell and purchase a position at a price that would be considered well below market value. Accommodation trading is also a way some criminals use to launder money and is often a warning signal of illegal business taking place.

While most accommodation trades are considered illegal, a cabinet trade is considered an allowable accommodation trade. It is considered legal, because it is essentially a way for an investor to clear their book of a worthless trade by dumping it for 1-cent per share or 1-dollar per contract. It is important to make this distinction between an illegal and allowable accommodation trade.