Offer
To show the desire to sell a futures contract at an established price.
Offset
See Offsetting.
Offsetting
Eliminating the obligation to make or take delivery of a commodity by liquidating a purchase or covering a sale of futures. This is affected by taking an equal and opposite position: either a sale to offset a previous purchase, or a purchase to offset a previous sale in the same commodity, with the same delivery date. If an investor bought an August gold contract on the COMEX, he would offset this obligation by selling an August gold contract on the COMEX. To offset an option, the same option must be bought or sold; i.e., a call or a put with the same strike price and expiration month.
Offsetting positions
1) Taking an equal and opposite futures position to a position held in the cash market. The offsetting futures position constitutes a hedge; 2) Taking an equal and opposite futures position to another futures position, known as a spread or straddle; 3) Buying a futures contract previously sold, or selling a futures contract previously bought, to eliminate the obligation to make or take delivery of a commodity. When trading futures options, an identical option must be bought or sold to offset a position.
Omnibus account
An account carried by one Futures Commission Merchant (FCM) with another. The transactions of two or more individual accounts are combined in this type of account. The identities of the individual account holders are not disclosed to the holding FCM. A brokerage firm may have an omnibus account including all its customers with its clearing firm.
One Cancels Other (OCO)
A qualifier used when multiple orders are entered and the execution of one order cancels a second or alternate order.
Open
1) The first price of the day for a contract on a securities or futures exchange. Futures exchanges post opening ranges for daily trading. Due to the fast-moving operation of futures markets, this range of closely related prices allows market participants to fill contracts at any price within the range, rather than be restricted to one price. The daily prices that are published are approximate medians of the opening range; 2) When markets are in session, or contracts are being traded, the markets are said to be “open.”
Open interest
For futures, the total number of contracts not yet liquidated by offset or delivery; i.e., the number of contracts outstanding. Open interest is determined by counting the number of transactions on the market (either the total contracts bought or sold, but not both). For futures options, the number of calls or puts outstanding; each type of option has its own open interest figure.
Open outcry
Oral bids and offers made in the trading rings, or pits. “Open outcry” is required for trading futures and futures options contracts to assure arms-length transactions. This method also assures the buyer and seller that the best available price is obtained.
Open trade equity
The gain or loss on open positions that has not been realized.
Opening range
Upon opening of the market, the range of prices at which transactions occurred. All orders to buy and sell on the opening are filled within the opening range.
Opportunity cost
The price paid for not investing in a different investment. It is the income lost from missed opportunities. Had the money not been invested in land, earning 5%, it could have been invested in T-Bills, earning 10%. The 5% difference is an opportunity cost.
Option seller
See Grantor and Writer.
Option contract
A unilateral contract giving the buyer the right, but not the obligation, to buy or sell a commodity, or a futures contract, at a specified price within a certain time period. It is unilateral because only one party (the buyer) has the right to demand performance on the contract. If the buyer exercises his right, the seller (writer or grantor) must fulfill his obligation at the strike price, regardless of the current market price of the asset.
Order
1) In business and trade, making a request to deliver, sell, receive, or purchase goods or services; 2) In the securities and futures trade, instructions to a broker on how to buy or sell. The most common orders in futures markets are market orders and limit orders (which see).
Original margin
See Initial margin.
Out-of-the-money
A call is out-of- the-money when the strike price is above the underlying futures price. A put is out-of-the-money when the strike price is below the underlying futures price.
Overbought
A technician’s term to describe a market in which the price has risen relatively quickly—too quickly to be justified by the underlying fundamental factors.
Oversold
A technical description for a market in which prices have dropped faster than the underlying fundamental factors would suggest.
