Glossary
Offer / offer price
In the options business this means the same as ask / ask price, or the price at which a seller is offering to sell an option or a stock.
Offsetting transaction
A trade with which serves to cancel or offset some or all of the market risk of an open position.
One-cancels-other order (OCO)
A type of option order which treats two or more option orders as a package, whereby the execution of any one of the orders causes all the orders to be reduced by the same amount. For example, the investor would enter an OCO order if he/she wished to buy 10 May 60 calls or 10 June 60 calls or any combination of the two which when summed equaled 10 contracts. An OCO order may be either a day order or a GTC order.
Open interest
The total number of outstanding option contracts on a given series or for a given underlying stock.
Open outcry
The trading method by which competing market makers and Floor Brokers representing public orders make bids and offers on the trading floor.
Opening transaction
An addition to, or creation of, a trading position. An opening purchase transaction adds long options to an investor's total position, and an opening sale transaction adds short options. An opening option transaction increases that option's open interest.
Option
A contract that gives the owner the right, but not the obligation, to buy or sell a particular asset (the underlying stock) at a fixed price (the strike price) for a specific period of time (until expiration) . The contract also obligates the writer to meet the terms of delivery if the contract right is exercised by the owner.
Option period
The time from when an option contract is created by a writer of that option to the expiration date; sometimes referred to as an option's 'lifetime.'
Option pricing curve
A graphical representation of the estimated theoretical value of an option at one point in time, at various prices of the underlying stock.
Option pricing model
The first widely-used model for option pricing is the Black Scholes. This formula can be used to calculate a theoretical value for an option using current stock prices, expected dividends, the option's strike price, expected interest rates, time to expiration and expected stock volatility. While the Black-Scholes model does not perfectly describe real-world options markets, it is still often used in the valuation and trading of options.
Option writer
The seller of an option contract who is obligated to meet the terms of delivery if the option owner exercises his or her right. This seller has made an opening sale transaction, and has not yet closed that position.
Optionable stock
A stock on which listed options are traded.
Options Clearing Corporation
A registered clearing agency whose shares are owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all listed option contracts.
Options Clearing Corporation, The (OCC)
A registered clearing agency whose shares are owned by the exchanges that trade listed equity options, OCC is an intermediary between option buyers and sellers. OCC issues and guarantees all listed option contracts.
Order
An instruction to execute a trade at a specified rate.
OTC option
An over-the-counter option is one which is traded in the over-the-counter market. OTC options are not listed on an options exchange and do not have standardized terms. These are to be distinguished from exchange-listed and traded equity options with NASD stocks as the underlying equity issue, which are standardized. See also Fungibility
Out-of-the-money
An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value
Out-of-the-money option
An adjective used to describe an option that has no intrinsic value, i.e., all of its value consists of time value. A call option is out of the money if the stock price is below its strike price. A put option is out of the money if the stock price is above its strike price. See also Intrinsic value and Time value
Over-the-counter / Over-the-counter market
A national association having many characteristics of an exchange. Rather than a floor or physically central market place, trading takes place via computer terminals.
Overwrite
An option strategy involving the writing of call options (wholly or partially) against existing long stock positions. This is different from the buy-write strategy which involves the simultaneous purchase of stock and writing of a call. See also Ratio write
Owner
Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.