Investing Glossary: O

open outcry system: A system where traders on a trading floor or in a trading pit shout and use hand signals to make transactions or trades with each other.

option: A derivative security that gives the holder a contractual right to buy or sell a set amount of a stock, commodity, or other asset at a specified price on or before the option’s expiration date. An option is purchased for a fee, called a premium.

option buyer; holder: A person who is buying options. Call option holders have the right to buy a stipulated quantity of the underlying asset specified in the contract at a specified strike price. Put option holders have the right to sell the specified amount at the strike price.

out of the money: A condition that is met when a call option’s strike price is above the prevailing price for the underlying stock. For example, if stock ABC is trading at $120 and the option’s strike price is $125, then the option is out of the money. For a put option, if the strike price is below the current market price of the stock, then the option is out of the money.

over-the-counter market (OTC): A securities market where trades are conducted by phone or computer network directly between dealers rather than on a physical trading floor. All bonds trade over-the-counter, as do unlisted stocks (generally, stocks of smaller companies that do not qualify for listing on an exchange).

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