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Offset

Counter-balancing of exposure through establishing exposure on the opposite side.

 

Open interest

The net (i.e. either long or short) open positions in a particular future or option contract which needs to be either traded out before expiry, or delivered at expiry.

Opening range

Represents the two extremes of price for two minutes after the first trade.

 

Options contract

A contract giving the holder the right, but not the obligation, to buy (call), or sell (put), a specified underlying asset at a pre-agreed price, at either a fixed point in the future (European-style), or at a time chosen by the holder up to maturity (American-style). Options are available in exchange-traded, and over-the-counter (OTC) markets.

 

Option conversions

An arbitrage trade is so called because it can be used by the holder of a put to alter his position to a call or vice versa. Converting a put to a call involves the purchase of the put, purchase of the underlying instrument or future, and sale of the call.

 

Option expiry

The last date on which an option may be exercised. For European options, this is the only date on which options may be exercised.

 

Option reversals

A type of arbitrage which maintains (and relies on) put-call parity. If a put is overvalued (or if the put is fairly valued but the call is undervalued), a riskless profit can be made by selling the put, buying the call, and selling the underlying instrument or the future. The actual arbitrage return depends on the additional borrowing costs/investment returns from the money market transactions which fund/result from these trades. Also referred to as reverse conversion.

 

Option sensitivities

Tendency of option price (premium) to change as a result of changes in key factors; changing prices in the underlying instrument for example (see delta, vega and theta).

 

OTC (Over-the-counter)

The market for securities or derivatives created outside organised exchanges by dealers trading directly with one another, or their counterparties, by telephone or screen.

 

Out-of-the-money

An option that has no intrinsic value because the price of the underlying is below the strike price of a call or above the strike price of a put.