Sure you can get industrial futures contracts, but don't you think your kids health deserves my free range, certified organic front month crude?

> "Yes. You would be purchasing both stock and the option from "the market.""

Does "the market" include OTC derivatives, i.e. options not traded on an exchange?

Depends on the context. But in order to get OTC options you are going to need to be doing some sort of massive deal (AFAIK never done OTC derivatives trading) or it needs to be some sort of esoteric option contract. You wouldn't do this as part of a normal equity/option hedge or trade. You also would almost certainly be paying a higher price for the privilege than you would on an exchange.

Buying a "normal" option contract on an equity is almost certainly not an OTC deal and is instead exchange traded. Those exchanges are very efficient like the equities exchanges are so options are priced competitively (thanks to options traders).