Odd lot The purchase or sale of securities in quantities of fewer than the standard trading lot — 100 shares of stock or $1,000 worth of bonds — is considered an odd lot.

At one time, trading an odd lot might have cost you a slightly higher commission, but in the electronic trading environment that’s generally no longer the case.

Off-board Transactions in New York Stock Exchange (NYSE) listed securities that aren’t executed on a national exchange are known as off-board transactions.

Those trades may be handled through an electronic market, such as the Nasdaq Stock Market, through an electronic communications network (ECN), or internally at a brokerage firm. The term off-board derives from the fact that the NYSE is colloquially known as the Big Board.

Offering price A security’s offering price is the price at which it is taken to market at the time of issue. It may also be called the public offering price.

For example, when a stock goes public in an initial public offering (IPO), the underwriter sets a price per share known as the offering price. Subsequent share offerings are also introduced at a specific price.

When the stock begins to trade, its market price may be higher or lower than the offering price. The same is true of bonds, where the offering price is usually the par, or face, value.

In the case of open-end mutual funds, the offering price is the price per share of the fund that you pay when you buy.

If it’s a no-load fund or you buy shares with a back-end load or a level load, the offering price and the net asset value (NAV) are the same. If the shares have a front-end load, the sales charge is added to the NAV to arrive at the offering price.

Offset You offset an options or futures position by taking a second position in a contract with identical terms, buying if you sold initially or selling if you bought initially.

With the offset, you neutralize any potential obligation you had to fulfill the terms of the contract, and you may make a profit or reduce a loss with the transaction.

For example, if you’d sold an equity call option that is close to being in-the-money, you might buy an offsetting call option. That neutralizes your obligation to deliver the underlying stock if the option you sold is exercised.

In a tax context, you can use capital losses to offset an equivalent dollar amount of capital gains, or up to $3,000 in capital losses to offset ordinary income. In either case, the offset allows you to reduce the tax you owe.

Further, banks have the right of offset if a borrower defaults on a loan. That right allows a bank to seize assets in the borrower’s deposit accounts with the bank to reduce or eliminate any loss on the loan.

Offshore fund An offshore fund is a mutual fund that’s sponsored by a financial institution that’s based outside the United States. Unless the fund meets all the regulatory requirements imposed on domestically sponsored funds, it can’t be sold in the United States.

However, an offshore fund may be sponsored by an overseas branch of a US institution, may invest in US businesses, and may be denominated, or offered for sale, in US dollars. In total, there are approximately four times as many offshore funds as there are US-based funds.

Online brokerage firm To buy and sell securities online, you set up an account with an online brokerage firm.

The firm executes your orders and confirms them electronically. When the markets are open, the turnaround may be very fast, but you can also give buy or sell orders at any time for execution when the markets open.

You may mail the firm checks to settle your transactions or transfer money electronically from your bank account.

Some online firms are divisions of traditional brokerage firms, while others operate exclusively in cyberspace. Most of them charge much smaller trading commissions than conventional firms.

Online firms usually provide extensive investment information, including regularly updated market news, on their websites, though they do not provide one-on-one consultations.

Online trading If you trade online, you use a computer and an Internet connection to place your buy and sell orders with an online brokerage firm.

While the orders you give online are executed immediately while the markets are open, you also have the option of placing orders at your convenience, outside normal trading hours.

Open-end index fund An open-end index fund operates like other open-end mutual funds, continuously issuing and redeeming shares based on investor demand. The main difference is that, as an index fund, its investment objective is to duplicate the performance of its underlying index.

Unlike an exchange traded fund (ETF), which also tracks an index but redeems shares only in exchange for corresponding baskets of securities, open-end index funds need cash to buy back shares that investors wish to redeem, or sell. If a fund must sell securities to meet redemption demands, the sale may generate capital gains or losses and cause the fund’s return to deviate from the index return.

You buy and sell open-end index funds at their net asset value (NAV), which is determined at the end of each trading day. In contrast, ETFs may be traded throughout the day, and market forces beyond the fund’s NAV can affect their prices.

Open interest Open interest is a record of the total number of open contracts in any particular commodity or options market on any given day.

You have an open interest when you enter a futures or options contract. The contract remains open until it expires, requires delivery or settlement, or you close it by selling it or buying an offsetting contract. Open interest is not the same thing as trading volume, which records how many contracts have been opened or closed on a particular day.

Open market In an open market, any investor with the money to pay for securities is able to buy those securities.

US markets, for example, are open to all buyers. In contrast, a closed market may restrict investment to citizens of the country where the market is located.

Closed markets may also limit the sale of securities to overseas investors, or forbid the sale of securities in specific industries to those investors.

In some countries, for example, overseas investors may not own more than 49% of any company. In others, overseas investors may not invest in banks or other financial services companies.

The term open market is also used to describe an environment in which interest rates move up and down in response to supply and demand.

The Federal Reserve’s Open Market Committee assesses the state of the US economy on a regular schedule. It then instructs the Federal Reserve Bank of New York to buy or sell Treasury securities on the open market to help control the money supply.

Open-market operatons Open-market operations allow the Fed to implement its monetary policy and regulate the money supply.

The Federal Reserve’s Open Market Committee (FOMC) regularly instructs the securities desk of the Federal Reserve Bank of New York to buy or sell government securities as part of the process of increasing or decreasing the cash available for lending.

Open order An order that remains on the books until it is either executed or canceled is known as an open order, or a good til canceled order (GTC).

Open outcry When exchange-based commodities traders shout out their buy and sell orders or use a combination of words and hand signals to negotiate an order, it’s known as open outcry.

When someone who shouts an offer to buy and someone who shouts an order to sell name the same price, a deal is struck, and the trade is recorded. Open outcry is one type of auction.

Open-end mutual fund Most mutual funds are open-end funds. This means they issue and redeem shares on a continuous basis, and grow or shrink in response to investor demand for their shares.

Open-end mutual funds trade at their net asset value (NAV), and if the fund has a front-end sales charge, that sales charge is added to the NAV to determine the selling price.

NAV is the value of the fund’s investments, plus money awaiting investment, minus operating expenses, divided by the number of outstanding shares.

An open-end fund is the opposite of a closed-end fund, which issues shares only once. After selling its initial shares, a closed-end fund is listed on a securities market and trades like stock. The sponsor of the fund is not involved in those transactions.

However, an open-end fund may be closed to new investors at the discretion of the fund management, usually because the fund has grown very large.

Opening The first transaction in each security or commodity when trading begins for the day occurs at what’s known as its opening, or opening price.

Sometimes the opening price on one day is the same as the closing price the night before. But that’s not always the case, especially with stocks or contracts that are traded in after-hours markets or when other factors affect the markets when the stock or commodity is not trading.

The opening also refers to the time that the market opens for trading or the time a particular instrument begins trading. For example, New York Stock Exchange (NYSE) opens at 9:30 ET. The first transaction in a single security may be at that time or at a later time.

Opportunity cost When you make an investment decision, there is often a next best alternative that you decided not to take, such as buying one stock and passing up the opportunity to buy a different one.

The difference between the value of the decision you did make and the value of the alternative is the opportunity cost.

If you decide to invest in a risky stock hoping to realize a high return, you give up the return you might have earned on a bond or blue chip stock. So if the risky stock fails to perform, and you only make 3% on it when you might have made 6% on a blue chip, then the opportunity cost of the risky investment is 3%.

Of course, if your stock pick pays off, there will have been no opportunity cost, because you will make more than the 6% available from the safer investment.

Businesses must also consider opportunity costs in their decision-making. If a company is considering a capital investment, it must also consider the return it would earn if, instead of going ahead with the capital project, it invested the same amount of money in some other way.

In general, a business will only make a capital investment if the opportunity cost is lower than the projected earnings from the new project.

Option Buying an option gives you the right to buy or sell a specific financial instrument at a specific price, called the strike price, during a preset period of time.

In the United States, you can buy or sell listed options on individual stocks, stock indexes, futures contracts, currencies, and debt securities.

If you buy an option to buy, which is known as a call, you pay a one-time premium that’s a fraction of the cost of buying the underlying instrument.

For example, when a particular stock is trading at $75 a share, you might buy a call option giving you the right to buy 100 shares of that stock at a strike price of $80 a share. If the price goes higher than the strike price, you can exercise the option and buy the stock at the strike price, or sell the option, potentially at a net profit.

If the stock price doesn’t go higher than the strike price before the option expires, you don’t exercise. Your only cost is the money that you paid for the premium.

Similarly, you may buy a put option, which gives you the right to sell the underlying instrument at the strike price. In this case, you may exercise the option or sell it at a potential profit if the market price drops below the strike price.

In contrast, if you sell a put or call option, you collect a premium and must be prepared to deliver (in the case of a call) or purchase (in the case of a put) the underlying instrument. That will happen if the investor who holds the option decides to exercise it and you’re assigned to fulfill the obligation. To neutralize your obligation to fulfill the terms of the contract before an option you sold is exercised, you may choose to buy an offsetting option.

Option chain Options chains are charts showing all the options currently available on a particular underlying instrument.

A chain, also called an options string, provides the latest price quotes for all those contracts as well as the most recent price for the underlying instrument and whether that price is up or down.

Because all this information is available in one place, options chains allow you to assess the market for a particular option quickly and easily. They’re a popular feature of online trading and financial information sites.

Option premium When you buy an option, you pay the seller a nonrefundable amount, known as the option premium, for the right to exercise that option before it expires.

If you sell an option, you receive a premium from the buyer. In fact, collecting the premium is often one motive for selling options, including those you anticipate will expire without being exercised.

An option premium is not a fixed amount, and typically increases as the option moves in-the-money and decreases if it doesn’t move in-the-money.

However, factors such as the price and volatility of the underlying instrument, current interest rates, and the amount of time left before the option expires also affect the premium price.

You can look at the current range of premium prices in the Options Quotations tables in newspapers or on options websites, such as the Options Clearing Corporation (OCC) website.

Options class An options class includes all the calls or all the puts on a single underlying instrument that share some of the same terms, such as contract size and exercise style.

For example, in the case of listed equity options, where all contracts are American-style and cover 100 shares, all the puts on Stock A are members of the same class.

Options Clearing Corporation (OCC) The Options Clearing Corporation issues all exchange-listed securities options in the United States and guarantees all transactions in those options.

The OCC also assigns exercised options for fulfillment, and handles the processing, delivery, and settlement of all options transactions.

The OCC is responsible for maintaining a fair and orderly market in options and is overseen by the Securities and Exchange Commission (SEC). It’s jointly owned by the exchanges that trade options.

For an overview of what you should know about options trading, you can check the OCC publication, "Characteristics and Risks of Standardized Options."

Options series An options series includes all the contracts within an options class that have identical terms, including expiration date and strike price. For example, all the calls on Stock A that expire in March and have a strike price of 45 are members of the same options series.

Order imbalance An order imbalance occurs when there are substantially more buy orders in a particular security than there are sell orders, or the reverse. The result is a wide spread between bid and ask prices.

A specialist on an exchange floor might ease a minor imbalance by purchasing shares if there was not enough demand or selling shares if there was more demand than supply.

Major imbalances typically result in a suspension of trading until the situation that caused the imbalance is resolved. Either very good or very bad news about a company may trigger an imbalance.

Order protection rule The order protection rule, part of Regulation NMS — for National Market System — adopted by the Securities and Exchange Commission (SEC) in 2005, requires that every stock trading center establish and enforce a policy that ensures no transaction will be traded-through, or executed at a price that’s lower than a protected quotation in that security displayed by another trading center.

A protected quotation is one that’s immediately and automatically accessible. The order protection rule, also called Rule 611, does allow certain exceptions, which apply to limit orders, immediate-or-cancel (IOC) orders, and intermarket sweep orders (ISOs).

Original issue discount A bond or other debt security that is issued at less than par but can be redeemed for full par value at maturity is an original issue discount security.

The appeal, from an investor’s perspective, is being able to invest less up front while anticipating full repayment later on.

Issuers like these securities as well because they don’t have to pay periodic interest. Instead, the interest accrues during the term of the bond so that the total interest when combined with the principal equals the full par value at maturity.

Zero-coupon bonds are a popular type of original issue discount security. The drawback, from the investor’s perspective is that the imputed interest that accumulates is taxable each year even though that interest has not been paid.

The exceptions are interest on municipal zero-coupons, which are tax exempt, or on zeros held in a tax-deferred or tax-exempt accounts.

OTC Bulletin Board (OTCBB) During the trading day, the electronic OTC bulletin board (OTCBB) provides continuously updated real-time bid and ask prices, volume information, and last-sale prices.

The OTCBB lists this information for unlisted US and overseas stocks, warrants, unit investment trusts (UITs), and American Depositary Receipts (ADRs).

It also lists Direct Participation Programs (DPPs) that are not listed on an organized market but are being traded over-the-counter (OTC).

Approximately 3,600 companies are tracked on the OTCBB. To qualify for inclusion, they must report their financial information to the Securities and Exchange Commission (SEC) or appropriate regulatory agency.

Out of the money An option is out-of-the-money when the market price of an instrument on which you hold an option is not close to the strike price.

Call options — which you buy when you think the price is going up — are out-of-the-money when the market price is below the strike price.

Put options — which you buy when you think the price of the underlying instrument is going down — are out-of-the-money when the market price is higher than the strike price.

For example, a call option on a stock with a strike price of 50 would be out-of-the-money if the current market price of the stock were $40.

And a put option at 50 on the same stock would be out-of-the-money if its market price were $60. When an option expires out-of-the-money, it has no value.

Outstanding shares The shares of stock that a corporation has issued and not reacquired are described as its outstanding shares. Some of but not all these shares are available for trading in the marketplace.

A corporation’s market capitalization is figured by multiplying its outstanding shares by the market price of one share. The number of outstanding shares is often used to derive much of the financial information that’s provided on a per-share basis, such as earnings per share or sales per share.

However, some analysts prefer to use floating shares rather than outstanding shares in calculating market cap and various ratios.

Floating shares are the outstanding shares that are available for trading as opposed to those held by founding partners, in pension funds, employee stock ownership plans (ESOP), and similar programs.

Over the counter (OTC) Securities that trade over-the-counter (OTC) are not listed on an organized stock exchange, such as the New York Stock Exchange (NYSE) or the Nasdaq Stock Market.

Common stocks, corporate, government, and municipal bonds (munis), money market instruments, and other products, such as forward contracts and certain options, may trade OTC.

Generally speaking, the OTC market is a negotiated market conducted between brokers and dealers using telephone and computer networks.

Overbought When a stock or entire securities market rises so steeply in price that technical analysts think that buyers are unlikely to push the price up further, analysts consider it overbought. For these analysts, an overbought market is a warning sign that a correction — or rapid price drop — is likely to occur.

Oversold A stock, a market sector, or an entire market may be described as oversold if it suddenly drops sharply in price, despite the fact that the country’s economic outlook remains positive.

For technical analysts, an oversold market is poised for a price rise, since there would be few sellers left to push the price down further.

Overvaluation A stock whose price seems unjustifiably high based on standard measures, such as its earnings history, is considered overvalued.

One indication of overvaluation is a price-to-earnings ratio (P/E) significantly higher than average for the market as a whole or for the industry of which the corporation is a part. The consequence of overvaluation is usually a drop in the stock’s price — sometimes a rather dramatic one.