OECD
See Organisation for Economic Co- operation and Development.

OEIC
See open-ended investment company.

Offer price
Price at which a security or a unit in a pooled fund can be purchased — usually higher than the bid price. (See also ask price, bid price, mid price.)

Official Journal of the European Union
Official publication in which all tenders above a defined monetary value for services issued by public sector organisations within the European Union must be advertised. This includes tenders for investment managers to take on mandates issued by Local Government Pension Schemes.

Offshore company
Company incorporated in a country other than that in which its main operations take place, usually where there is little government control and/or low taxes.

OJEU
See Official Journal of the European Union.

OPEC
See Organization of Petroleum Exporting Countries.

Open position
Normally used in the context of exchange- traded futures and options. It denotes a position that is exposed to movements in the price of the futures and options.

Open-ended funds
Collective investment schemes in which the number of units in the fund varies from day to day according to the number of investors wishing to buy or sell holdings in the fund. The price of units is set by the manager of the scheme by reference to the net asset value of the fund. (See also closed-ended fund, net asset value.)

Open-ended investment company (OEIC)
Type of open-ended pooled fund vehicle (see open-ended funds), legally set up as a company and similar to a unit trust in practical operation.

Opening price
Price at which a security commences trading at the opening of a trading day.

Operating cash flow
Value of cash moving through an organisation as a result of its operational (rather than financial) activities.

Operational risk
Risk arising from failed processes in carrying out a company’s business functions.

Opportunity cost
Cost of missing out on the best choice when making an investment decision. For example, a large fund may be too big to purchase an attractive share without moving the market price against itself, and would miss out on this opportunity compared with a smaller fund that would not move the price.

Optimisation
Creation of a portfolio which will give the highest expected total return for a given set of forecasts and estimated risks. (See also efficient frontier, modern portfolio theory.)

Option
Right, but not obligation, to buy or sell a security at an agreed price within an agreed time period. (See also call option, put option.)

Option-adjusted spread (OAS)
Fixed number of basis points that would need to be added to the gilt yield curve at all durations to equate the market price of a bond with the present value of the bond’s future payments, taking into account any options inherent in the bond. Bond options include the right (of the borrower) to repay capital prior to the bond’s maturity date, or the right (of the lender) to demand early repayment of capital. Using the OAS rather than the nominal spread allows for direct comparison between option-free bonds and those that have put or call features. (See also Z-spread, nominal spread.)

Option writer
Person who “sells” an option. The writer has the obligation to buy/sell the underlying security at the request of the option buyer.

Ordinary share
Share in the ownership of a company that gives the holder the right to receive distributed profits and to vote at general meetings of the company. An ordinary shareholder ranks behind all other creditors/investors if the company is wound up.

Organic growth
Where a company grows its existing business as opposed to growth through mergers or acquisitions.

Organisation for Economic Co- operation and Development (OECD)
International Paris-based organisation consisting of developed European countries as well as the USA, Canada and Australia. Its mandate is to promote economic and social welfare in each of its member states.

Organization of Petroleum Exporting Countries (OPEC)
Group of countries that collaborate in order to manage their exportation of crude oil to the rest of the world.

OTC
See over the counter.

Out-of-market risk
Risk that a portfolio misses out on the returns from a particular market because it is not invested in the market at the time. Out-of-market risk potentially arises during transitions when cash from selling assets is not immediately available for reinvestment.

Out-of-the-money
Option that has no intrinsic value. That is, an option which it would not be worthwhile to exercise immediately — for example, a call option with an exercise price above the current underlying share price, or a put option with an exercise price below the current underlying share price.

Outperformance
Used to refer to the performance of a portfolio relative to its benchmark — a portfolio is said to outperform if its return is greater than that of its benchmark. Underperformance is defined similarly.

Over the counter (OTC)
Any market which does not operate through a recognised exchange — for example, foreign exchange market, any non-standard option contract.

Overlay manager
Investment manager engaged to generate additional returns or to reduce risk through the management of a derivative portfolio which does not impact on the underlying assets held. (See also currency overlay, protection overlay, tactical asset allocation overlay.)

Overnight Index Swap (OIS)
An interest rate swap involving the overnight rate being exchanged for a fixed interest rate. Generally short-term, the interest of the overnight rate portion of the swap is compounded and paid at reset dates, with the fixed leg being accounted for in the swap’s value to each party.

Overvalued
Security that a fund manager perceives to be worth less than its market price, based on some other valuation criteria.

Overweight
a.Exposure to a specific asset (or asset class) which is higher than the proportion it represents in the market index or benchmark against which the portfolio is measured. Investment managers may take overweight positions in shares or sectors they expect to outperform in order to add value to the portfolio.
b.Specific rating within a three-part credit rating system which indicates whether a fixed income security should be bought (overweight), sold (underweight) or held (marketweight). (See also marketweight, underweight.)

Offer
An expression indicating one’s desire to sell a commodity at a given price; opposite of bid.

Offset
Taking a second futures or options position opposite to the initial or opening position. See Liquidate.

OPEC
Organization of Petroleum Exporting Countries, emerged as the major petroleum pricing power in1973, when the ownership of oil production in the Middle East transferred from the operating companies to the governments of the producing countries or to their national oil. Members are: Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

Opening Range
A range of prices at which buy and sell transactions took place during the opening of the market.

Open Interest
The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Each open transaction has a buyer and a seller, but for calculation of open interest, only one side of the contract is counted.

Open Market Operation
The buying and selling of government securities Treasury bills, notes, and bonds by the Federal Reserve.

Open Outcry
Method of public auction for making verbal bids and offers in the trading pits or rings of futures exchanges.

Option
A contract that conveys the right, but not the obligation, to buy or sell a particular item at a certain price for a limited time. Only the seller of the option is obligated to perform.

Option Buyer
The purchaser of either a call or put option. Option buyers receive the right, but not the obligation, to assume a futures position. Also referred to as the holder.

Option Premium
The price of an option the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.

Option Seller
The person who sells an option in return for a premium and is obligated to perform when the holder exercises his right under the option contract. Also referred to as the writer.

Option Spread
The simultaneous purchase and sale of one or more options contracts, futures, and/or cash positions.

Option Writer
See Option Seller.

Original Margin
The amount a futures market participant must deposit into his margin account at the time he places an order to buy or sell a futures contract. Also referred to as initial margin.

Out-of-the-Money Option
An option with no intrinsic value, i.e., a call whose strike price is above the current futures price or a put whose strike price is below the current futures price.

Over-the-Counter (OTC) Market
A market where products such as stocks, foreign currencies, and other cash items are bought and sold by telephone and other means of communication such as over electronic dealing networks, interbank market or other securities trading facilities.