What Is the Primary Risk Associated with Executing a Large Options Trade via an OTC Block Trade?

The primary risk is 'counterparty risk.' Since the trade is negotiated directly between two parties (or through a dealer) and not cleared through a central exchange, there is a risk that the counterparty will default on their obligation before settlement. While a broker-dealer or prime broker may mitigate this, the risk is still higher than on a centralized exchange where a Central Counterparty (CCP) guarantees the trade.