Objective (mutual funds)
The fund’s investment strategy category as stated in the prospectus. There are more than 20 standardized categories.
A trading order for less than 100 shares of stock.
Odd lot dealer
A broker who combines odd lots of securities from multiple buy or sell orders into round lots and executes transactions in those round lots.
Indicates a willingness to sell at a given price. Related: bid
A document that outlines the terms of securities to be offered in a private placement.
A statement published by an issuer of a new municipal security describing itself and the issue
Elimination of a long or short position by making an opposite transaction. Related: liquidation.
An account carried by one futures commission merchant with another futures commission merchant in which the transactions of two or more persons are combined and carried in the name of the originating broker, rather than designated separately.
A special case of the arbitrage pricing theory that is derived from the one-factor model by using diversification and arbitrage. It shows the expected return on any risky asset is a linear function of a single factor.
An Option that pays off as soon as the trigger price touches the barrier. Often, it is a Binary Option (q.v.).
(1) A market in which only one side, the bid or asked, is quoted or firm. (2) A market that is moving strongly in one direction.
OPEC (Organization of Petroleum Exporting Countries)
A cartel of oil-producing countries.
Arrangement whereby sales are made with no formal debt contract. The buyer signs a receipt, and the seller records the sale in the sales ledger.
Contracts which have been bought or sold without the transaction having been completed by subsequent sale or purchase, or by making or taking actual delivery of the financial instrument or physical commodity.
The total number of derivative contracts traded that not yet been liquidated either by an offsetting derivative transaction or by delivery. Related: liquidation
Open (good-til-cancelled) order
An individual investor can place an order to buy or sell a security. That open order stays active until it is completed or the investor cancels it.
A net long or short position whose value will change with a change in prices.
A repo with no definite term. The agreement is made on a day-to-day basis and either the borrower or the lender may choose to terminate. The rate paid is higher than on overnight repo and is subject to adjustment if rates move.
Also called a mutual fund, an investment company that stands ready to sell new shares to the public and to redeem its outstanding shares on demand at a price equal to an appropriate share of the value of its portfolio, which is computed daily at the close of the market.
Open-market purchase operation
A systematic program of repurchasing shares of stock in market transactions at current market prices, in competition with other prospective investors.
The method of trading used at futures exchanges, typically involving calling out the specific details of a buy or sell order, so that the information is available to all traders.
The range of prices at which the first bids and offers were made or first transactions were completed.
A transaction in which the purchaser’s intention is to create or increase a long position in a given series of options.
The average time intervening between the acquisition of materials or services and the final cash realization from those acquisitions.
Degree to which exchange rate changes, in combination with price changes, will alter a company’s future operating cash flows.
Operating profit margin
The ratio of operating margin to net sales.
Short-term, cancelable lease. A type of lease in which the period of contract is less than the life of the equipment and the lessor pays all maintenance and servicing costs.
Fixed operating costs, so-called because they accentuate variations in profits.
The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk.
Operationally efficient market
Also called an internally efficient market, one in which investors can obtain transactions services that reflect the true costs associated with furnishing those services.
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in comparable financial securities.
The difference in the performance of an actual investment and a desired investment adjusted for fixed costs and execution costs. The performance differential is a consequence of not being able to implement all desired trades. Most valuable alternative that is given up.
The contract that balances the three types of agency costs (contracting, monitoring, and misbehavior) against one another to minimize the total cost.
An efficient portfolio most preferred by an investor because its risk/reward characteristics approximate the investor’s utility function. A portfolio that maximizes an investor’s preferences with respect to return and risk.
Optimal redemption provision
Provision of a bond indenture that governs the issuer’s ability to call the bonds for redemption prior to their scheduled maturity date.
Optimization approach to indexing
An approach to indexing which seeks to Optimize some objective, such as to maximize the portfolio yield, to maximize convexity, or to maximize expected total returns.
The right but not the obligation to buy (call) or sell (put) an underlying asset at a predetermined and fixed price, enter into a long or short futures position, or receive a payoff that simulates a purchase or a sale.
Out-of-the-Money. Having an Intrinsic Value of zero.
An option on the performance of one asset in excess of the performance of another. Typically, one measures the outperformance by the excess of the one return or rate of retun over the other. One might also measure the outperformance as the excess of the ratio of the two final price over a benchmark ratio.
The percentage increase in an option’s value given a 1% change in the value of the underlying security.
Option not to deliver
In the mortgage pipeline, an additional hedge placed in tandem with the forward or substitute sale.
The option price.
Also called the option premium, the price paid by the buyer of the options contract for the right to buy or sell a security at a specified price in the future.
Also called the option writer , the party who grants a right to trade a security at a given price in the future.
Option-adjusted spread (OAS)
(1) The spread over an issuer’s spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market price. (2) The cost of the implied call embedded in a MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread.
Options contract multiple
A constant, set at $100, which when multiplied by the cash index value gives the dollar value of the stock index underlying an option. That is, dollar value of the underlying stock index = cash index value x $100 (the options contract multiple).
Options on physicals
Interest rate options written on fixed-income securities, as opposed to those written on interest rate futures contracts.
A securities marketplace wherein purchasers and sellers regularly gather to trade securities according to the formal rules adopted by the exchange.
Original face value
The principal amount of the mortgage as of its issue date.
Original issue discount debt (OID debt)
Debt that is initially offered at a price below par.
The margin needed to cover a specific new position. Related: Margin, security deposit (initial)
Maturity at issue. For example, a five year note has an original maturity of 5 years; one year later it has a maturity of 4 years.
A call option is out-of-the-money if the strike price is greater than the market price of the underlying security. A put option is out-of-the-money if the strike price is less than the market price of the underlying security.
Actual forward rate expressed in dollars per currency unit, or vice versa.
The practice of purchasing a significant percentage of intermediate components from outside suppliers.
Outstanding share capital
Issued share capital less the par value of shares that are held in the company’s treasury.
Shares that are currently owned by investors.
An indicator that attempts to define when prices have moved too far and too fast in either direction and thus are vulnerable to reaction.
A strategy of using futures for asset allocation by pension sponsors to avoid disrupting the activities of money managers.
Overnight delivery risk
A risk brought about because differences in time zones between settlement centers require that payment or delivery on one side of a transaction be made without knowing until the next day whether the funds have been received in an account on the other side. Particularly apparent where delivery takes place in Europe for payment in dollars in New York.
A repurchase agreement with a term of one day.
When a security is expected to appreciate at a rate faster than the overall market.
The supposition that investors overreact to unanticipated news, resulting in exaggerated movement in stock prices followed by corrections.
Investors are not able to buy all of the shares or bonds they want, so underwriters must allocate the shares or bonds among investors. This occurs when a new issue is underpriced or in great demand because of growth prospects.
Over-the-counter market (OTC)
A decentralized market (as opposed to an exchange market) where geographically dispersed dealers are linked together by telephones and computer screens. The market is for securities not listed on a stock or bond exchange. The NASDAQ market is an OTC market for U.S. stocks.