Options Glossary: O

Offer / Offer price

The price at which a seller is offering to sell an option or a stock. Also known as ask or ask price.

One-cancels-other order (OCO)

A type of option order that 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 they 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 a day order or a good-‘til-cancel 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 owner exercises the contract right.

Option period

The time from when a buyer or writer of an option creates an option contract 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 was 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 (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.

OTC option

An over-the-counter option 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, which are standardized. See also Fungibility.

Out-of-the-money / Out-of-the-money option

A term used to describe an option that has no intrinsic value. The option’s premium consists entirely of time value. For standard contracts, 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 decentralized association of market participants, with many characteristics of an exchange, where trading takes place via an electronic network.

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 that 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.

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