Definitions Starting with "O"

Obamanomics

Obamanomics refers to the economic policies of former United States President Barack Obama. In general terms, the primary focus of Obamanomics was economic stimulation in the wake of recession. Read more

Objective Probability

Objective probability is the chance that a specific thing will occur. For example, let's say John buys a raffle ticket to support a local Girl Scouts troop. Read more

Obligation

An obligation is a legal requirement to fulfill a responsibility. In the finance world, this often involves making specific payments by specific dates and/or ensuring that a company meets certain performance requirements. Read more

Obsolescence Risk

Obsolescence risk is the risk that a company's product or service will become obsolete or out of date. For example, consider the fax machine. Read more

Obsolete Inventory

Obsolete inventory is inventory that is essentially useless and/or unsellable. For example, consider Company XYZ, a cheese manufacturer. Read more

Occupancy Fraud

Occupancy fraud occurs when a mortgage borrower lies to a bank about his or her intention to occupy the home that he or she is purchasing with the mortgage. For example, let's say John lives in Denver. Read more

Occupancy Rate

Occupancy rate is the ratio of rental units rented versus the total number in the building, city, state, etc. The formula for occupancy rate is: Occupancy Rate = Units Rented Out / Total Units For example, let's assume that Company XYZ owns an apartment building that has 300 units. Read more

Occupational Labor Mobility

Occupational labor mobility is the ease with which a workforce can switch industries, retrain for new jobs and transfer to other sectors. For example, consider ice delivery or typewriter repair. Read more

Ocean Bill of Lading

An ocean bill of lading is a receipt and invoice between a carrier and a shipper. For example, let's assume that Company XYZ is in Seattle and it wants to purchase goods from Supplier ABC in China. Read more

October Effect

The October Effect is the theory that stock prices will fall in the month of October. In general, investors create a self-fulfilling prophecy regarding the October Effect. Read more

Odd Days Interest

Odd days interest refers to interest earned on loans that close on any day other than the standard day the lender requires interest and principal payments. For example, let's assume that John obtains a mortgage from his bank, and the monthly interest and principal payments will be $2,500. Read more

Odd Lot

An odd lot is an order for anything less than 100 shares. This is the opposite of a "round lot," which are orders in multiples of 100 shares. Read more

Odd-Lot Theory

The odd-lot theory states that an increase in odd lot activity is a buy signal in a market. An odd lot is a group of shares that is not a multiple of 100 (100 shares is called a round lot). Read more

Odd-Lotter

An odd-lotter buys securities in odd lots. An odd lot is a group of shares that is not a multiple of 100 (100 shares is called a round lot). Read more

OEX

OEX is the ticker symbol of index options on the S&P 100, which trade on the Chicago Board Options Exchange (CBOE). The Standard & Poor's 100 index (S&P 100) is a subset of the famous S&P 500 index. Read more

Off Balance Sheet

Off balance sheet refers to items that are effectively assets or liabilities of a company but do not appear on the company's balance sheet. For example, let's assume that Company XYZ has a $4,000,000 line of credit with Bank ABC. Read more

Off Board

The New York Stock Exchange is commonly referred to as the Big Board. Accordingly, "off board" refers to trades of stocks that occur outside major exchanges. Read more

Off-Balance-Sheet Financing

Off-balance-sheet financing is an accounting method whereby companies record certain assets or liabilities in a way that keeps them from appearing on the balance sheet. For example, let's assume that Company XYZ has a $4,000,000 line of credit with Bank ABC. Read more

Off-Floor Order

An off-floor order is an investor's request to a broker to buy or sell securities. An off-floor order is what many consider a typical order transaction. Read more

Off-Premise Banking

Off-premise banking refers to regular banking transactions that happen outside of a physical bank, typically at automated teller machines (ATMs). For example, let's assume that Bank XYZ is headquartered in Denver, Colorado. Read more

Off-the-Run Treasuries

An off-the-run Treasury is any Treasury bill or note that is not part of the most recent issue of the same maturity. For example, let's assume that in March, the U. Read more

Off-the-Run Treasury Yield Curve

An off-the-run Treasury yield curve is a yield curve based on the maturities, prices, and yields of Treasury bills or notes that are not part of the most recent issue of Treasury securities. For example, let's assume that in March, the U. Read more

Offensive Competitive Strategy

Offensive competitive strategy therefore refers to those strategies that companies adopt to stay ahead of the competition rather than react to the competition. As in team sports, companies can play defense or offense, strategically speaking. Read more

Offer

An offer is a communication of interest in buying or selling an asset. In other contexts, it might refer to the act of making something available for sale. Read more

Offer in Compromise (OIC)

An offer in compromise is an arrangement between a taxpayer and a taxing authority, whereby the taxing authority agrees to let a taxpayer settle a tax debt for less than the full amount. For example, let's say John owes the IRS $40,000 in back taxes. Read more

Offering

An offering is the process of issuing new securities for sale to the public. For example, let's say the founders of Company XYZ want to sell half of their shares. Read more

Offering Circular

An offering circular is an abbreviated prospectus. For example, let's assume than Company XYZ wants to conduct an initial public offering (IPO) of its shares. Read more

Offering Memorandum

An offering memorandum is a legal document that discloses the terms, conditions, risks, and other information about a private placement. It is not the same thing as a prospectus (those are for issuances of publicly-traded securities). Read more

Offering Price

An offering price is the price at which a company lists its shares, bonds or other securities on an exchange. For example, let's say the founders of Company XYZ want to sell half of their shares. Read more

Office Audit

An office audit is a type of audit by the IRS. For example, let's say John Doe gets a letter from the IRS saying that he is being audited. Read more

Office Of Federal Housing Enterprise Oversight (OFHEO)

The Office of Federal Housing Enterprise Oversight (OFHEO) is a defunct regulatory body that ensured the financial safety of Freddie Mac and Fannie Mae. Started in 1922 after the passage of the Federal Housing Enterprises Financial Safety and Soundness Act, the OFHEO became part of the Federal Housing Finance Agency (FHFA) in 2008 when President Barack Obama signed the Housing and Economic Recovery Act of 2008. Read more

Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control is the entity within the U. S. Read more

Office of the Comptroller of the Currency (OCC)

The Office of the Comptroller of the Currency (OCC) is a division of the U. S. Read more

Office of Thrift Supervision (OTS)

The Office of Thrift Supervision (OTS) was a regulatory agency that provided oversight to thrift institutions. On July 21, 2011, the OTS became part of the Office of the Comptroller of the Currency (OCC). Read more

Official Settlement Account

An official settlement account is an account that records transactions of foreign exchange reserves, bank deposits and gold at a central bank. For example, the Federal Reserve uses official settlement accounts to keep track of its transactions in gold, dollars or other assets with other countries' central banks. Read more

Official Staff Commentary

An official staff commentary is a set of written answers from the Federal Reserve or the Treasury department regarding various interpretations and regulatory guidance on a myriad of topics. The Federal Reserve provides official staff commentaries when addressing new regulations and interpretations of regulations and offering guidelines to consumers and institutions. Read more

Official Strike

An official strike, also called an "official industrial action," is a work stoppage by a union. For example, let's say that the unionized workers at a company feel that they are underpaid. Read more

Offline Transaction

An offline transaction, also known as a signature debit transaction, is a payment method that uses a debit card to transfer funds from a checking account to a merchant across a digital credit card network. When you pay for goods or services with your debit card, you have the option to process your payment in one of two ways: 1) as an offline transaction via a credit card processing network, or 2) as an online transaction via an electronic funds transfer (EFT) system. Read more

Offset

An offset is a transaction that cancels out the effects of another transaction. Offsetting transactions are common in options and futures markets. Read more

Offset Mortgage

An offset mortgage is a mortgage held in the same bank as the borrower's deposit accounts, savings accounts or other accounts. The mortgage payments are calculated based on the borrower's combined balance. Read more

Offsetting Transaction

An offsetting transaction is a transaction that cancels out the effects of another transaction. Offsetting transactions are common in options and futures markets. Read more

Offshore Banking Unit (OBU)

An offshore banking unit is a bank branch in another country. For example, let's assume that Bank XYZ is an American bank with a branch in Bermuda. Read more

Offshore Mutual Fund

An offshore mutual fund is a mutual fund based in another country. Offshore mutual funds cannot be sold in the United States unless they comply with American regulations; however, they can invest in U. Read more

Offtake Agreement

An offtake agreement is an agreement between a buyer and seller of a resource to purchase or sell products that are yet to be produced. Let's say Company X developed a way to grow a special kind of popcorn that turns purple when popped. Read more

Oil Field

An oil field is land that contains oil. Specifically, an oil field contains oil that is trapped by a layer of rock. Read more

Oil Refinery

An oil refinery is a factory that turns crude oil into marketable products such as gasoline, jet fuel, lubricants and heating oils.   Refining oil is complicated, but generally the idea is to heat the crude oil, separate it out, and add things to the separated portions to formulate products. Read more

Oil Reserves

Oil reserves are estimates of the amount of crude oil in a specific area. Let's say Company XYZ is an oil company that is actively engaged in detecting and drilling for oil. Read more

Oil Sands

Also called tar sands, oil sands are areas of the ground that contain a viscous form of oil called bitumen. Alberta, Canada, is famous for its oil sands, which are important sources of oil but require special extraction methods. Read more

Okun's Gap

Okun's gap occurs when a country's actual gross domestic product differs from its predicted gross domestic product when applying Okun's law. Named after economist Arthur Okun, Okun's law states that for every 1% increase in the employment rate, gross domestic product increases 3%. Read more

Okun's Law

Named after economist Arthur Okun, Okun's law states that for every 1% increase in the employment rate, gross domestic product increases 3%. Let's say the unemployment rate decreases by 2% (that is, employment increases by 2%). Read more

Old Economy

Old Economy describes an economy or even a group of industries that does not rely on technology or technological advancement.   For example, horse farms, bread baking, landscaping and prostitution are old economy industries. Read more

Old Lady

In the banking world, Old Lady is a nickname for the Bank of England. The full nickname is "Old Lady of Threadneedle Street. Read more

Oligopoly

An oligopoly is an economic market whereby a small number of companies or countries generate and control the entire supply of a good or service. Let's assume that Company XYZ, Company ABC, and Company 123 produce 95% of the country's carrots. Read more

Oligopsony

An oligopsony is a market in which only a few buyers purchase all of an industry's output. Let's assume that Company XYZ, Company ABC and Company 123 buy 95% of the country's carrots. Read more

On Account

On account is a term that describes situations in which a customer makes a partial payment for goods or services purchased. In the business world, buying things on account is the same as creating accounts payable. Read more

On Balance Volume (OBV)

On Balance Volume (OBV) was designed by Joseph Granville to track the flow of volume in and out of a stock or index. Essentially, OBV is a running total of volume. Read more

One-Cancels-All (OCA)

A One-Cancels-All (OCA) order is a group of limit orders linked together within a brokerage account. If one order is executed, all other linked orders are automatically canceled. Read more

One-Cancels-the-Other Order (OCO)

In trading, a one-cancels-the-other order is an instruction given when placing two orders simultaneously. If one part of an order on a security is executed, then the other part is canceled. Read more

One-Night-Stand Investment

A one-night-stand investment is a security that was supposed to be a long-term investment but is sold after a short time. Let's say John Doe goes to an investing seminar that hypes the stock of a beverage company that sells juice formulations that make wild claims about how they might improve someone's health. Read more

One-Sided Market

One-sided markets can be volatile and very stressful for market makers. Market makers are obligated to facilitate trading in particular stocks even if doing so is inconvenient or less profitable. Read more

One-Stop Shop

A one-stop shop is a single location where all of the needed services for a particular activity are provided. One-stop shopping is a popular concept for packaging products and service oriented businesses. Read more

One-Way Market

Also called a one-sided market, a one-way market is a market in which market makers only show a bid or an offer price rather than both. In broader terms, the concept refers to situations in which the entire market is strongly heading in a certain direction. Read more

Online Banking

Online banking enables bank customers to handle account management and perform account transactions directly with the bank through the internet.   This is also known as internet banking. Read more

Online Transaction

An online transaction, also known as a PIN-debit transaction, is a password-protected payment method that authorizes a transfer of funds over an electronic funds transfer (EFT) When you pay for goods or services with your debit card, you have an option for the payment to be processed in two different ways: as an offline transaction via a credit card processing network, or as an online transaction via an EFT system, requiring a personal identification number (PIN) to complete the process. When processed as an online transaction, the exchange of funds is completed using an EFT network, such as Star, Pulse or Interlink, depending on which EFT system your bank is associated with as a member bank. Read more

Open

In the stock markets, open refers to the beginning of the trading day or the price of a security at the beginning of the trading day. The New York Stock Exchange has the most famous opening bell. Read more

Open Order

An open order is an instruction to buy or sell securities that has not been executed or cancelled.   Another term used is "backlog order. Read more

Open Outcry

Open outcry is a trading mechanism that uses verbal bids and offers. It is usually conducted in trading pits on futures and options exchanges. Read more

Opening Bell

Opening bell refers to the beginning of the trading day on an exchange. However, in the United States, only the New York Stock Exchange (NYSE) rings an actual bell every day. Read more

Opening Price

The open is the start of a new day, though it is important to note that that doesn't necessarily mean trading hasn't been going on right before the open. After-hours markets remain open as do other exchanges in other countries and time zones, which provides opportunity for the price to change right up until the open in many cases. Read more

Operating Cash Flow (OCF)

Operating cash flow (OCF) is a measure of the cash generated or used by a company in a given period solely related to core operations. OCF is not the same as net income, which includes transactions that did not involve actual transfers of money (depreciation is a common example of a noncash expense that is part of net income but not OCF). Read more

Operating Cash Flow Demand (OCFD)

Operating cash flow demand (OCFD) is the present value of the minimum amount of cash a capital investment must generate over its life in order to meet the investor's minimum required return. Let's assume that Company XYZ wants to purchase a widget machine. Read more

Operating Cash Flow Margin

Operating cash flow margin is cash from operating activities as a percentage of sales in a given period.  Operating cash flow margin is generally calculated using the following formula:Operating Cash Flow Margin = Cash Flow from Operating Activities / Sales The operating cash flow margin is not the same as net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow). Read more

Operating Cash Flow Ratio

The operating cash flow ratio is cash from operating activities as a percentage of current liabilities in a given period.  Operating cash flow ratio is generally calculated using the following formula:Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities The operating cash flow ratio is not the same as the operating cash flow margin or the net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow). Read more

Operating Company/Property Company (Opco Propco)

An operating company/property company deal (opco propco) is a strategy in which a company is divided into at least two parts: a property company that owns all the real estate and assets associated with generating revenues, and an operating company that uses those assets to generate sales. Let's say Company XYZ is a restaurant chain with 10 units. Read more

Operating Cost

Operating costs are key components of operating income calculation (and operating income is a crucial component of many financial measures). Thus, the lower a company's operating costs are, the more profitable it generally is. Read more

Operating Earnings

Operating earnings is a measure of profitability that tells investors how much of revenue will eventually become profit for a company. The formula for calculating operating earnings is:Operating Earnings = revenue - cost of goods sold, labor and other day-to-day expenses incurred in the normal course of businessIt is important to understand what expenses are included and excluded when calculating operating earnings. Read more

Operating Expense

An operating expense is a day-to-day expense incurred in the normal course of business. These expenses appear on the income statement. Read more

Operating Expense Ratio (OER)

The operating expense ratio (OER) is equal to a company's operating expenses divided by its revenues. The measure is very common in real estate analysis, whereby analysts are measuring the costs to operate a piece of property versus the income it generates. Read more

Operating Income

Operating income is the amount of revenue left after subtracting operating expenses and cost of goods sold (COGS). Operating income is a measure of profitability directly related to a company’s operations. Read more

Operating Income Before Depreciation and Amortization (OIBDA)

Operating income before depreciation and amortization (OIBDA) is a measure of the income generated or used by a company in a given period exclusive of the company's capital spending decisions and its tax structure. It is important to note that OIBDA is not the same as EBITDA. Read more

Operating Lease

An operating lease is simply a lease that does not give the lessee rights similar to those of an owner of the asset. Let's assume Company XYZ needs a widget machine for its factory. Read more

Operating Leverage

Operating leverage is the ratio of a company's fixed costs to its variable costs.  Here is the formula for operating leverage:Operating Leverage = [Quantity x (Price - Variable Cost per Unit)] / Quantity x (Price - Variable Cost per Unit) - Fixed Operating CostTo see how operating leverage works, let's assume Company XYZ sold 1,000,000 widgets for $12 each. Read more

Operating Margin

Operating margin is a financial metric used to measure the profitability of a business. The operating margin shows what percentage of revenue is left over after paying for costs of goods sold and operating expenses (but before interest and taxes are deducted). Read more

Operating Netback

Operating netback is a measure used in the oil and gas industry to reflect the net profit on oil and gas after royalties, production, and transportation expenses.  The formula for operating netback is:Operating Netback = Price - Royalties - Production - TransportationLet's assume that Company XYZ drills for oil in the Gulf of Mexico. Read more

Operating Profit

Also called earnings before interest and taxes (EBIT), operating profit calculates the profits earned from a company’s core business after subtracting the cost of goods sold (COGS), operating costs, and any depreciation expenses.   The balance after deducting these costs and expenses from the company’s operating revenue is the money left in the business that can be used for expansion, investment, and growth. Read more

Operating Ratio

Operating ratio is the ratio of operating expenses to net sales. Operating ratio is also a common term in the insurance business, where it refers to an issuer's profit from underwriting and investment activities. Read more

Operating Revenue

Operating revenue is the sales associated with a company's core, day-to-day operations. Let's assume that Company XYZ sells $1,000,000 of widgets -- its main business -- this year. Read more

Opportunity Cost

Opportunity cost is the return on an investment/opportunity you missed out on, compared to the return on the investment that you chose. To determine what was lost (or gained), opportunity cost may be calculated as a number or a ratio. Read more

Option

An option is a financial contract that gives an investor the right, but not the obligation, to either buy or sell an asset at a pre-determined price (known as the strike price) by a specified date (known as the expiration date). Options are derivative instruments, meaning that their prices are derived from the price of their underlying security, which could be almost anything: stocks, bonds, currencies, indexes, commodities, etc. Read more

Option Pricing Theory

Option pricing theory is the theory of how options are valued in the market. The Black-Scholes model is the most common option pricing theory. Read more

Options Backdating

Options backdating occurs when a company grants an option that is dated prior to the date the company granted the option. For example, let's assume Jane Smith is the CEO of Company XYZ. Read more

Options Clearing Corporation (OCC)

The Options Clearing Corporation (OCC) is a clearinghouse for equity options and is a guarantor of the obligations in listed options contracts.   The OCC confirms, certifies and clears contract trades. Read more

Options Contract

Options contracts are agreements between a buyer and seller which give the buyer the right to buy or sell a particular asset at a later date (expiration date) and an agreed-upon price (strike price).   They’re often used for securities, commodities, and real estate transactions. Read more

Oracle of Omaha

Thanks to an ability to spot undervalued companies and purchase them on the cheap, Buffett has made many people very wealthy over the course of his five-decade career. Buffett caught the investing bug at the University of Nebraska, where he read Benjamin Graham's "The Intelligent Investor. Read more

Ordinary Dividend

An ordinary dividend is a dividend that is not eligible for capital gains tax. For example, let’s assume that John Doe holds 10,000 shares of Company XYZ stock, which pays $0. Read more

Ordinary Income

Ordinary income is not a capital gain, dividend or other income subject to special taxation.   In the United States, ordinary income is taxed progressively, meaning that there are a series of brackets in which income is taxed. Read more

Organization for Economic Cooperation and Development (OECD)

The Organization for Economic Cooperation and Development (OECD) is an international economic forum that pursues cooperative approaches to common issues affecting individual members as well as the global community. The OECD was formed in 1948 as part of the plan to rebuild Europe following the Second World War, known as the Marshall Plan. Read more

Original Cost

Original cost is the total cost attributed to purchasing an asset. For accounting purposes, it is important to identify the original cost of an asset. Read more

Orphan Stocks

Orphan stocks is a colloquial term for stocks that analysts and investors seem to disregard. Orphan stocks are stocks that investors and analysts tend to ignore. Read more

Out of the Money (OTM)

"Out of the money" describes an option that is worthless if exercised today. In the case of a call option, the option has no intrinsic value because the current price of the underlying stock is less than the option strike price. Read more

Outsourcing

Outsourcing is a business strategy that includes transferring work from a company’s employees to an external party. Many companies outsource their services and the creation of goods with the goal of decreasing costs such as employees, overhead, equipment, and technology. Read more

Outstanding Shares

Outstanding shares are common stock authorized by the company, issued, purchased and held by investors. Outstanding shares may also be referred to as shares outstanding, or issued shares. Read more

Over the Counter (OTC)

An over the counter security is traded through a dealer network rather than through a centralized, formal exchange (such as the NYSE, Nasdaq, or London Stock Exchange). Assets traded OTC are usually traded by private securities dealers who negotiate directly with buyers and sellers. Read more

Over the Counter Market (OTCBB)

The over-the-counter (OTC) market, also known as the over-the-counter bulletin board (OTCBB), is a quotation service offered by the National Association of Securities Dealers (NASD) that provides quote and volume information for securities traded over the counter (that is, securities not listed on the Nasdaq, NYSE, AMEX or other exchanges). The OTC market began operating in June 1990, after the Penny Stock Reform Act of 1990 required the SEC to establish an electronic quotation system for those stocks. Read more

Overdraft

In most states, writing a bad check is at least a misdemeanor, with the consequences growing depending on the state, the amount involved and whether the transaction crosses state lines. Most overdrafts are simply oversights by consumers, so even if the police are not involved, the fees for bouncing checks can run in the hundreds or even thousands of dollars if the check writer is particularly disorganized. Read more

Overhead

Overhead refers to the ongoing operating expenses necessary to running a business, but are not attributed to a specific business activity.   Also referred to as "indirect costs. Read more

Overnight Rate

The overnight rate is the interest rate banks charge each other on loans for meeting reserve requirements. The overnight rate is frequently confused with the discount rate, which is the interest rate the Federal Reserve charges on loans from the Federal Reserve Bank, but they are different rates. Read more

Overvalued

Overvalued describes a security for which the market price is considered too high for its fundamentals. Some metrics used to evaluate whether a security is overvalued are: P/E ratio, growth potential, and balance sheet health. Read more

Overweight

Overweight refers to a given security which has been disproportionately allocated in an investment portfolio relative to a benchmark. It is the opposite of underweight. Read more

Owner Financing

Owner financing is when a seller, usually of a property or a business, provides financing for the purchase directly to the buyer under a for sale by owner situation.  Owner financing is also referred to as seller financing or creative financing. Read more