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Options Clearing Corporation (OCC) The Options Clearing Corporation (OCC) is the primary central counterparty and guarantor for listed options and certain futures-related products in the United States. It clears and settles exchange-traded options, ensures contract obligations are met, and helps manage counterparty and systemic risk across equity derivatives markets. The OCC operates under the regulatory…

Options backdating Options backdating is the practice of assigning an earlier grant date to an employee stock option (ESO) than the actual issuance date so the option’s exercise (strike) price is set at a lower historical stock price. That makes the option immediately “in the money” and more valuable to the recipient. Key takeaways Backdating…

Options Key takeaways * Options are derivatives that give the buyer the right—but not the obligation—to buy or sell an underlying asset at a specified strike price before or at a set expiration date. * Calls profit from rises in the underlying; puts profit from declines. Sellers (writers) receive a premium but assume obligations and…

Optionable Stocks: What They Are and How They Work Key takeaways * An optionable stock has exchange-listed options available to trade. * Exchanges set minimum criteria — price, public float, shareholder count, and trading volume — before listing options. * Almost 6,000 companies and several hundred ETFs currently have listed options. * Stocks without listed…

Option Series: Meaning and How It Works An option series is the set of option contracts on the same underlying security that share both the same strike price and the same expiration month. Call and put options are grouped into separate series; for example, all call contracts on Company X with a $50 strike that…

Option Pricing Theory What is option pricing theory? Option pricing theory estimates the fair value of an options contract by quantifying the probability it will finish in the money (ITM) at expiration. Traders, market makers, and risk managers use mathematical models to convert market variables into a theoretical option price, which helps assess potential profitability…

Option Premium: Definition, Components, and Key Factors What is an option premium? An option premium is the price paid by the buyer of an option contract to the seller (writer). It is the market value of the right — but not the obligation — to buy (call) or sell (put) an underlying asset at a…

Option Pool: Definition, Purpose, Structure, and How It Works What is an option pool? An option pool is a block of a private company’s equity reserved to grant stock options to employees, consultants, advisors, and sometimes early hires or board members. It is a common tool for startups to attract and retain talent before the…

Option Margin: Definition, Requirements, and How to Calculate What is option margin? Option margin is the cash or securities an investor must deposit with a broker as collateral when writing (selling) options. Unlike margin for stocks or futures, which is primarily used as leverage to increase buying power, option margin functions as collateral to secure…

Options Disclosure Document (ODD): Purpose, Contents, and Requirements What is the ODD? The Options Disclosure Document (ODD), formally titled “Characteristics and Risks of Standardized Options,” is a guide published by the Options Clearing Corporation (OCC) to help investors understand options: what they are, how they work, and the risks involved. It is intended especially for…

What is an option cycle? An option cycle (or expiration cycle) is the pattern of months on which a class of equity options is regularly listed to expire. When an option class is first listed, it is assigned to one of a few standard cycles so that option expirations are broadly distributed across the calendar….

Option Class What is an option class? An option class comprises all options of the same type (either all calls or all puts) listed on an exchange for a single underlying security. For example, every listed call option on Apple (AAPL) belongs to the Apple call option class; every put option on Apple belongs to…

Options Chain: What It Is and How to Read and Analyze It An options chain is a table that lists all available option contracts for a specific underlying security, organized by expiration date and strike price. It’s the primary tool options traders use to compare contracts, assess market sentiment, and find trading opportunities. Key takeaways…

Option Agreement Key takeaways An option agreement (options contract) grants the buyer the right, but not the obligation, to buy or sell an underlying asset at a preset strike price before or at a specified expiration date. Two main types: call options (right to buy) and put options (right to sell). Options can be used…

Understanding Option-Adjusted Spread (OAS) The option-adjusted spread (OAS) measures the yield spread a fixed-income security offers over a risk-free benchmark (typically Treasuries) after adjusting for any embedded options—such as callable or mortgage-backed securities (MBS) features—that can alter the bond’s future cash flows. OAS helps investors estimate the compensation they receive for credit, liquidity and other…

Option Adjustable-Rate Mortgage (Option ARM) An Option Adjustable-Rate Mortgage (Option ARM), also called a flexible-payment ARM, is a mortgage that lets the borrower choose among several monthly payment options. Typical choices include a 30-year fully amortizing payment, a 15-year fully amortizing payment, an interest-only payment, or a minimum payment that may not cover all accrued…

Optimum Currency Area (OCA) Theory Optimum Currency Area (OCA) theory describes when it is economically advantageous for a geographic region to adopt a single currency instead of individual national currencies. The trade-offs center on the gains from reduced transaction costs and exchange-rate uncertainty versus the loss of independent monetary policy and exchange-rate adjustments. Origins and…

Optimized Portfolio As Listed Securities (OPALS) Optimized Portfolio As Listed Securities (OPALS) are single-country equity index products created by Morgan Stanley in 1994. They aim to replicate a national equity index while holding fewer, “optimized” securities than the full benchmark, with the goal of closely tracking—and potentially outperforming—the target index while reducing complexity and costs….

Optimization: Overview and Examples in Technical Analysis Key takeaways Optimization improves a portfolio, algorithm, or trading system by reducing costs or increasing efficiency. Common goals include lowering transaction costs, reducing risk, increasing expected returns, or changing rebalancing frequency. Optimization is ongoing because market conditions, regulations, and technology continually change. Over-optimization (overfitting) and tradeoffs between objectives…

Optimal Currency Area (OCA) What is an Optimal Currency Area? An optimal currency area (OCA) is a geographic region in which adopting a single currency would maximize the economic benefits (lower transaction costs, deeper capital markets, easier trade) while minimizing the costs (loss of independent monetary and exchange-rate policies). The concept explains when a shared…

Optimal Capital Structure Optimal capital structure is the mix of debt and equity financing that minimizes a company’s weighted average cost of capital (WACC) and, in turn, maximizes its market value. Getting the balance right lowers funding costs, supports higher present value of future cash flows, and enhances shareholder wealth — while avoiding excessive financial…

Oprah Effect The “Oprah Effect” describes the dramatic sales and publicity boost that follows a recommendation or feature by Oprah Winfrey—especially during her long-running daytime show (1986–2011). A single endorsement from Oprah could turn products, books, and personalities into national phenomena almost overnight. How it works Trust and authenticity: Oprah typically promoted products and people…

Opportunity Cost Opportunity cost is the value of the next-best alternative you forgo when you make a choice. It measures the benefits you miss out on by selecting one option instead of another and is a key concept for decision-making in business and personal finance. Why it matters Encourages comparison of all viable alternatives before…

Operations Management Definition Operations management (OM) plans, organizes, and continuously improves the processes that produce and deliver goods or services. Its goal is to maximize efficiency and profitability by coordinating people, materials, equipment, technology, and information across an organization. Key takeaways OM administers business processes to maximize organizational efficiency. Operations managers design, coordinate, and refine…

Operating Target: Definition and How It Works An operating target is a specific, measurable financial variable a central bank sets to guide day-to-day implementation of monetary policy. It is an intermediate goal the bank can directly influence and observe—used to steer broader objectives such as stable prices, maximum employment, or sustainable growth. Key takeaways Operating…

Understanding Operational Risk: Key Concepts and Management Strategies What is operational risk? Operational risk is the potential for loss from inadequate or failed internal processes, people, systems, or external events that affect a company’s daily operations. It is an unsystematic (company- or industry-specific) business risk distinct from market, financial, or strategic risks. While it cannot…

Operational Efficiency Operational efficiency measures how effectively an organization or market converts operating inputs (costs, time, labor) into desired outputs (profit, returns, services). Higher operational efficiency means generating more income or value for the same—or lower—costs. Key takeaways Operational efficiency evaluates profit relative to operating costs; improving it increases margins and competitiveness. In financial markets,…

Operation Twist: Definition and Purpose Operation Twist is a monetary policy tool used by the Federal Reserve to lower long-term interest rates when short-term policy rates are already near zero or when standard tools are constrained. The Fed conducts Operation Twist by selling short-term Treasury securities and using the proceeds to buy longer-term Treasuries. The…

Operating Revenue: Definition, How It’s Generated, and Examples What is operating revenue? Operating revenue is the income a company earns from its primary business activities. It reflects the money generated by the goods or services that define the company’s core operations—for example, merchandise sales at a retailer or fees for medical services at a physician’s…

Operating Ratio (OPEX) What it is The operating ratio measures how efficiently a company turns net sales into operating costs. It compares the sum of operating expenses and cost of goods sold (COGS) to net sales. A lower operating ratio indicates greater operational efficiency — a smaller share of revenue is consumed by operating costs….

Operating Profit Definition Operating profit (also called operating income) is the earnings a company generates from its core business operations after deducting the costs required to run the business. It excludes financing costs (interest), taxes, and non-operating or one-time items such as investment income or gains from asset sales. Why it matters Measures how efficiently…

Operating Margin Operating margin measures how much profit a company makes from its core operations for each dollar of sales, after deducting production and operating costs but before interest and taxes. Key takeaways Operating margin shows the percentage of revenue that remains after paying operating expenses (EBIT ÷ Revenue). It indicates operational efficiency and how…

Operating Loss (OL): Definition and Overview An operating loss occurs when a company’s operating expenses exceed its gross profit (or revenue for service businesses). It indicates that the firm’s core operations are running at a loss before accounting for interest and taxes. Key points: * Operating income (or loss) measures profit from regular business activities,…

Operating Leverage What is operating leverage? Operating leverage measures how sensitive a company’s operating income (EBIT) is to a change in sales. It reflects the mix of fixed and variable costs: businesses with high fixed costs and low variable costs have high operating leverage, while businesses with low fixed costs and high variable costs have…

Operating Lease — Overview An operating lease is a contract that allows a party (the lessee) to use an asset owned by another party (the lessor) without transferring ownership. Commonly used for real estate, aircraft, vehicles, office equipment and industry-specific machinery, operating leases let businesses access required assets without the large upfront cost of purchase….