Glossary

Optionetics Trading Education Center

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Objective (Mutual Funds)
The fund's investment strategy category as stated in the prospectus. There are more than 20 standardized categories.

Obligation
A legal responsibility for a debt.

Obligator
Refers to a person who has a legal obligation to pay a debt, such as a borrower of money, a credit customer of a business supplier or retailer, or an issuer of bonds. Also referred to as a debtor or obligor.

Obligor
Refers to a person who has a legal obligation to pay a debt, such as a borrower of money, a credit customer of a business supplier or retailer, or an issuer of bonds. Also referred to as a debtor or obligator.

Observer
A concept used in radar research, applicable to trading, in how often and what manner detection or radar contact is achieved.

Odd Lot
An amount of a security that is less than the normal unit of trading for that security. Generally, an odd lot is fewer than 100 shares of stock or five bonds. An investor may pay a premium when trying to purchase with odd lots.

Odd Lot Dealer
A dealer who buys round lots of stock and resells it in odd lots to retail brokers. These brokers charge clients the regular commission rate plus an extra charge, which is referred to as the odd lot differential.

Odd Lot Theory
A historical theory that the odd lot investor, traditionally a small personal investor trading in less than 100 shares at a time, is usually guilty of bad timing and profits can be made by acting contrary to odd lot trading patterns. Those who believe this theory interpret heavy odd lot buying in a rising market as an indication of technical weakness and the signal of a market reversal. Heavy odd lot buying in a declining market is seen as an indication of technical strength as is thus a signal to buy. Analysis of odd lot trading patterns over the years has failed to support this theory with any real consistency. Odd lot investors tend to buy market leaders and have tended to do well in the upward market of the past 50 years.

OEX
This term, pronounced as three separate letters, is Wall Street shorthand for Standard & Poor's 100 stock index. OEX index options are traded on the Chicago Board of Trade and futures are traded on the Chicago Mercantile Exchange.

Offer Down
The change of the offer of the market related to a downward price movement at that specific time.

Of Record
Shareholders of record are those who appear on the company's books or records as of a certain date. If, for example, a company announces that it will pay a dividend to shareholders of record January 15, every shareholder whose name appears on the company's books on that day will be sent a dividend check from the company.

Off-the-Board
This term refers to transactions made over-the-counter in unlisted securities, or, in a special situation, to a transaction involving a block of listed stock that is not executed on a recognized stock exchange.

Offer
The lowest price at which a person is willing to sell.

Off-floor Trader
Refers to a trader who does not trade on the actual floor of an organized stock exchange.

Offset
To liquidate a position by entering an equivalent but opposite transaction. To offset an initial purchase, a sale is made; to offset an initial sale, a purchase is made.

On-Balance Volume (OBV)
OBV is one of the most popular volume indicators and was developed by Joseph Granville. Constructing an OBV line is very simple: the total volume for each day is assigned a positive or negative value depending on whether prices closed higher or lower that day. A higher close results in the volume for that day to get a positive value, while a lower close results in negative value. A running total is kept by adding or subtracting each day's volume based on the direction of the close. The direction of the OBV line is the thing to watch, not the actual volume numbers.

One-Tailed T-Test
A statistical test of significance for a distribution that changes its shape as N gets smaller; based on a variable t, equal to the difference between the mean of the sample and the mean of the population divided by a result obtained by dividing the standard deviation of the sample by the square root of the number of individuals in the sample.

On-the-Money
An option term, meaning not in-the-money, not out-of-the-money, but right smack in the middle. For options it means that the option in question is trading at its exercise price.

Open Account
Trade credit that entails no formal evidence of debt.

Open-end or Investment Company
This is a company that uses its capital to invest in other companies. Open end, or mutual funds, sell their own new shares to investors, buy back their old shares, and are not listed for trading on a stock exchange. Open-end funds get their name because their capitalization is not fixed. They normally issue more shares as demand dictates.

Open Interest
The current number of contracts that are available in a specific option series. For example, the open interest in the Jan $25 Calls for Happy Trust is 122 contracts. At present there are 122 contracts that been initiated. The number of outstanding option contracts in the exchange market or in a particular series.

Open Order
An order to buy or sell a security at a specified price, valid until executed or canceled.

Open Outcry
Verbal bids and offers made on the trading floors of stock exchanges. This method is disappearing as exchanges become automated.

Open Trades
Current trades that are still held active in the customer's account.

Opening
The period at the beginning of the trading session during which all transactions are considered made or first transactions were completed.

Opening Call
A period at the opening of a futures market in which the price for each contract is established by outcry.

Opening Price
The range of prices at which the first bids and offers were made or first transactions were completed.

Opening Purchase
A transaction in which the purchaser's intention is to create or increase a long position in a given series of options.

Opening Range
The range of prices that occur during the first 30 seconds to five minutes of trading, depending on the preference of the individual analyst.

Opening Sale
A transaction in which the seller's intention is to create or increase a short position in a given series of options.

Operating Income
The profit realized from one year of operation of a business.

Opportunity Cost
The economic sacrifice that arises from having to forego attractive alternatives. It is an implicit cost in that it entails no actual cash outflows and is estimated by considering the value of benefits foregone. The cost of using your capital for one investment versus another. For example, if you have $10,000 in one investment, this is $10,000 that cannot be used elsewhere.

Option
A security that represents the right, but not the obligation, to buy or sell a specified amount of an underlying security (stock, bond, futures contract, etc.) at a specified price within a specified time. The purchaser acquires a right to exercise the specifics of the contract, and the seller assumes a legal obligation to fulfill the contract if the purchaser chooses to exercise his/her right. Interesting to note that options are a zero sum game, meaning that if someone makes $10,000 on an option, the other person has lost out on that same amount.

Option Eligible Securities
Securities that meet the eligibility criteria as underlying securities for put and call options on a stock exchange.

Option Holder
The buyer of either a call or put option.

Option Premium
This is the price of an option. It is the amount of money that the option holder pays for the rights and the option writer receives for the obligations granted by the option.

Option Writer
The seller of either a call or put option. The option writer receives payment, called a premium, and is obligated to buy or sell the underlying security at a specified price, within a certain period of time, if called upon to do so.

Order
1. A ticket or voucher to buy or sell securities.
2. The number of days of past price history used to predict the following day's price.

Order Department
Refers to the operating department of a brokerage firm that receives customers' orders from the registered representative and transmits them to the exchange floor where a floor ticket is prepared, or directly to the appropriate registered representatives. (Also known as the order room, wire room, or wire and order.)

Order Flow
The volume of orders being bought or sold on the exchanges.

Order Room
Refers to the operating department of a brokerage firm that receives customers' orders from the registered representative and transmits them to the exchange floor where a floor ticket is prepared, or directly to the appropriate registered representatives. (Also known as the order department, wire room, or wire and order.)

Order Ticket
A form completed upon receipt of order instructions from a client by a registered representative or account executive of a brokerage firm. Federal laws require that order tickets be retained for a specific period of time.

Organized Securities Exchange
A phrase sometimes used to distinguish a stock exchange from an over-the-counter market.

Orphan Stock
Refers to stock that has been neglected by research analysts. A stock may be orphaned if it is too small or has disappointed investors in the past. Orphaned stock tends to trade at low price/earnings ratios. If researchers re-discover the stock and start recommending it, the price and price/earnings ratio may be boosted significantly. Investors purchasing stock at the neglected orphan stage can reap a high return on investment if the stock is rediscovered.

Oscillator
Technical indicator used to identify overbought and oversold price regions. An indicator that detrends data, such as price.

OTC Market
The security exchange system in which broker-dealers negotiate directly with one another rather than through an auction on an exchange floor. The trading takes place over computer and telephone networks that link brokers and dealers around the world. Both listed and OTC securities are traded in the OTC market.

Other Current Assets
Value of non-cash assets, including prepaid expenses and accounts receivable, due within 1 year.

Other Long-term Liabilities
Value of leases, future employee benefits, deferred taxes and other obligations not requiring interest payments that must be paid over a period of more than 1 year.

Other Sources
Amount of funds generated during the period from operations by sources other than depreciation or deferred taxes. Part of Free Cash Flow calculation.

Out-of-Line
A security that appears to be selling too low or too high in relation to comparable issues.

Out-of-Sample
An item within the range of a sample that does not conform to the mean of the sample.

Out-of-the-Money
A call option whose exercise price is above the current market price of the underlying security or futures contract. For example, if a commodity price is $500, then a call option purchased for a strike price of $550 is considered out-of-the-money.

Out-of-the-Money Option (OTM)
A call option is out-of-the-money if its exercise or strike price is above the current market price of the underlying security. A put option is out-of-the-money if its exercise or strike price is below the current market price of the underlying security.

Outdata
The result (singular) stemming from a statistical test.

Outlier
A value removed from the other values to such an extreme that its presence cannot be attributed to the random combination of chance causes.

Outside Reversal Month
A month in which the recent monthly trading range exceeds the previous month's range and closes opposite (reverses) the previous month's close.

Outstanding Shares
Securities that have been issued and sold to shareholders are referred to as outstanding.

Out-trades
A situation that results when there is some confusion or error on a trade. A difference in pricing, with both traders thinking they were buying, for example, is a reason why an out-trade may occur.

Over The Counter (OTC)
Refers to trading in a security that is not listed and traded on an organized exchanged, or a market in which securities transactions are conducted through a telephone and computer network connecting dealers in stocks and bonds rather than on the floor of an exchange. OTC stocks are usually stocks of smaller companies that do not meet the listing requirements of the New York Stock Exchange or the American Stock Exchange. However, many companies qualifying for listing choose to remain with over the counter trading because of the system of multiple trading by many dealers rather than the approach of the exchanges, where all trading in a stock has to go through the exchange specialist in that stock. The term used to describe a security that is traded through the telephone- and computer-connected OTC market rather than through an exchange. They are regular stock exchanges, but the requirements to get a company listed there are less strict than those of the other exchanges, also cheaper. In Canada the OTC market is known as COATS. In the U.S., it is called the Pink Sheets.

Overbought
A technical analysis term for a market in which more and stronger buying has occurred than the fundamentals justify.

Overfitting
The parameters of a trading system are selected to return the highest profit over the historical data. A model developed with rules tailored to fit the historical data precisely.

Oversold
A technical analysis term for a market in which more and stronger selling has occurred than the fundamentals justify.

Overbought / Oversold Indicator
An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction.

Overvalued
A term used to describe a stock whose current price is not justified on the basis of the earnings outlook or the price to earning ratio. Overvalued stocks may result from deterioration in the company's financial strength or an emotional buying spurt. It is expected that overvalued stocks will drop in price.

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