Financial Derivative Terms - O

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Odd Dates: Also known as stub periods, these are periods which are not of the length as specified in the contract. Usually these are dates which may fall after the start date of a cycling period or before the end of a complete cycling period or both. They can be either longer than a standard period or shorter.
Offer Price: Also known as the asking price, this is the value of a publicly issued security (including management and underwriting fees) that is available for purchase.
Offset: A strategy used to reduce potential losses in a trade. Usually this involves hedging which involves the purchase or sale of an underlying asset together with the sale or purchase of a related derivative.
Omega: The currency risk that arises when the buyer or seller of an option has to account for the transaction in a different currency.
Option: A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date, therefore requiring the other party to sell (call) or buy (put) the security per the agreement.
Option Adjusted Spread (OAS): The difference that the investor receives for assuming various risks (including credit risk, liquidity risk, model risk), minus the cost of the embedded option. OAS = (total spread) – (spread due to optionality)
Option Combination Strategies: Option positions may be combined to create a net pay-off profile that corresponds to the risk reward profile of the investor. Based on an investor’s point of view, he can implement strategies that utilize combinations of options to manage pay-outs and option premiums. Some examples of option strategies include spreads, combinations, straddles, strangles, condors, etc.
Option Holder: The party who pays a premium for the right to buy or sell an underlying asset under an option contract up to maturity and has not yet exercised or sold that right.
Option Pricing Models: The mathematical designs used to calculate the value of options. Common examples include the Black-Scholes model, the Cox-Rubinstein binomial model, the Black 76 model and the Garman Kohlhagen model.
Option Risk: The possibility that a change in interest rates will cause an option holder to exercise the option earlier or later than expected.
Option Strategy: Any combination of option types and trade positions used to generate additional income from investments and/or minimize losses (hedging).
Option Writer: The seller of either a call or put option who receives a payment (premium) from the buyer obligating the seller to fulfill the contract if and when the buyer (holder) exercises the option.
Out-of-the-Money: Either a call option where the asset price is less than the strike price or a put option where the asset price is greater than the strike price, therefore, having no intrinsic value and would be worthless if it expires at this point in time.
Over the Counter (OTC): Purchases and sales of financial instruments that do not take place in organized security exchanges but rather that are dealt directly between counterparties or through a broker.

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