What Is Option-Adjusted Spread (OAS)? The option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option. Typically, an analyst uses Treasury yields for the risk-free rate. The spread is added to the fixed-income security
What Is an Options Chain? An options chain, also known as an option matrix, is a listing of all available options contracts for a given security. It shows all listed puts, calls, their expiration, strike prices, and volume and pricing information for a single underlying asset within a given maturity period. The chain will typically be
What Is an Options Disclosure Document (ODD)? The options disclosure document (ODD) is a publication issued by the Options Clearing Corporation (OCC) that serves as an important guide for options traders. The comprehensive document—formally titled Characteristics and Risks of Standardized Options—is particularly essential for novice options traders. Options are financial derivatives based on the value
What is Option Margin Option margin is the cash or securities an investor must deposit in their account as collateral before writing—or selling—options. Margin requirements are established by the Federal Reserve Board in Regulation T and vary based on the type of option. Key Takeaways Options margins are the cash or security that traders must submit
What Is an Option Premium? An option premium is the current market price of an option contract. It is thus the income received by the seller (writer) of an option contract to another party. In-the-money option premiums are composed of two factors: intrinsic and extrinsic value. Out-of-the-money options premiums consist solely of extrinsic value. For
What Is Option Pricing Theory? Option pricing theory estimates a value of an options contract by assigning a price, known as a premium, based on the calculated probability that the contract will finish in the money (ITM) at expiration. Essentially, option pricing theory provides an evaluation of an option’s fair value, which traders incorporate into
What Is Options Backdating? Options backdating is the process of granting an employee stock option (ESO) that is dated before its actual issuance. In this way, the exercise (strike) price of the granted option can be set at a lower price than that of the company’s stock price at the granting date. This process makes
What Is Opening Price? The opening price is the price at which a security first trades upon the opening of an exchange on a trading day; for example, the New York Stock Exchange (NYSE) opens at precisely 9:30 a.m. Eastern time. The price of the first trade for any listed stock is its daily opening
What Is the Opening Range? The opening range (OR) describes a security’s high and low price for a short period just after the market opens, often the first fifteen minutes of the trading day. Day traders often monitor a stock’s opening range because it can provide an indication of market sentiment and price trend for
What Is Open Interest? Open interest is the total number of outstanding derivative contracts, such as options or futures that have not been settled for an asset. Open interest keeps track of every open position in a particular contract, rather than tracking the total volume traded in it, which may also included netting or closing
