O-P

OPTION VALUATION MODEL: This model that assesses option prices incorporates six
factors into its pricing assumptions: the underlying security price, the strike price, time to expiration, interest rates, volatility of the underlying and any dividends to be paid. The model develops theoretical valuations for individual options and provides information necessary to determine proper ratios in a neutral spread position. It also assumes that underlying price movement is random with no directional bias except for a slight upward bias related to carrying costs.

OPTION WRITING: The result of selling options in an opening transaction.

OPTIONS CLEARING CORPORATION: (OCC) The issuer of all options contracts trade-
on the Amex/NASAQ, Chicago Board Options Exchange, Pacific Stock Exchange and
Philadelphia Stock Exchange.

OTC: Over the Counter.

OUT OF THE MONEY: A call option is out of the money if the strike price is greater than the market price of the underlying security. A put option is out of the money if the strike price is less than the market price of the underlying security. In other words, an option with no parity value.

OVERVALUED OPTION: An option trading at more than its’ theoretical value, as estimated using an option valuation model.

PARITY: A call option is said to be at ‘parity’ when the price of the option equals the underlying stock price minus the strike price. A put option is at ‘parity’ when the price of the option equals the strike price minus the underlying stock price. Also called intrinsic value.

PATH DEPENDENCE: Dependence on the actual path taken by an underlier over a specific timeframe

PLATYKURTOSIS: When a distribution’s tails are thinner than those of the normal
distribution.

PREMIUM: The price of an option contract, determined in the competitive marketplace, that the buyer of the option pays to the option seller for the rights conveyed by the option contract.

PRIMARY INSTRUMENT: A financial instrument whose value is not derived from that of
another instrument, but instead is determined by the market.

PROBABILITY DISTRIBUTION: A mathematical function which describes the
events in the sample space must equal one.
probabilities of possible events in a "sample space." The sum probability of all the possible call.

PUT/CALL PARITY: A formula that relates the price of a put to the price of a corresponding underlying instrument.

PUT/CALL RATIO: The number of puts traded each day divided by the number of calls
traded each day. Near market lows, the put/call ratio will rise as options traders become excessively worried about downside risk and seek to hedge their portfolios with puts, or speculate on further downside activity. Near market peaks, interest in calls heats up to form a low put/call ratio. The put/call ratio is thus a contrary indicator when it reaches past extreme highs or lows.

PUT OPTION: A put option is a financial derivative that gives the right, but not the obligation, to sell an underlying asset at a predetermined strike price within a specific timeframe. This type of option is typically used as a hedge against potential losses in other investments or to speculate on future market movements. Put options are purchased when investors anticipate that the value of the instrument will go down.

RATIO SPREAD: Any option spread which consists of an unequal number of long and short contracts of options of the same class. Usually, this term refers to vertical spreads.