StockWave Financial Glossary O

Glossary O

The financial world is full of jargon - i.e. strange words no-one understands. Here we try to explain some of the many technical terms.

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O

OFEX

A market for small UK companies run by a broker, not the LSE. It may be hard to trade in these stocks; liquidity may be a problem.

Offer Price

The price at which you can buy a security.

Oil

What capitalism runs on; control of it, its supplies and pricing are of too obvious importance to further remark upon - if you want the politics and social consequences, just turn on any TV set.

The most important thing about oil is that since it is a fossil fuel, it will, absolutely with no doubt whatsoever, run out at some point (- or rather, become uneconomic to extract). This, obviously, worries a lot of people a great deal. The big question is then - 'how long have we got left?'

Oil production, apparently, follows a universal law called the Hubbert Curve which is bell-shaped and symmetrical, so that for example, once production has peaked, it declines steadily. Some people argue that peak production has already been reached, others that it will be another 20 years or so. Both views are argued with incredible passion. Only the oil and gas industry itself actually knows what the number is, and they are hardly likely to tell us straight out; however, despite the ever increasing demand for oil, the industry is not spending very much on exploration or on new refineries - this speaks volumes about the truth of the situation.

The opposing views on the size of a number - 'How many years left?' are so vicious and ideological because they overlay with environmental, economic and political issues, because, once we know when the oil will run out, we will be forced to do something about it, which means making big changes to the way we do things, i.e. the way our economy works. Those best served by the status quo will naturally do anything at all to defeat any restriction of their wealth and power; restrictions on energy usage will restrict growth, which will make for a stock market slump. Only steady growth stabilises our economic system, without it, we face breakdown.

Ranges for the year of peak production go from about 2006 to 2037 (- official US DoE figures); the variation is so great simply because the oil companies and oil producing nations tend to lie a lot about their reserves - depending on the situation it can be to your commercial advantage to exaggerate or downplay your estimated reserves.

Right now you may be thinking -

So what the f***!? All this fuss when we've only - at worst - used up half of the stuff; we have plenty of time - many, many years ...

But this is missing the point - entirely. The trouble is that the 'pain' begins once we get on the downslope of the curve and increases the further along we go. Demand for oil is greater than it has ever been and will continue to increase - this means that prices will skyrocket, as will the costs of everything that depends on oil - which is most things, including the food you eat.

After oil we can try -

Gas. Same problems as oil, will run out 20 years after.
Coal, tar sands. Very polluting, not a high net energy return
Methane. Need lots of cow farts.

These are all pretty rotten from a global warming viewpoint. Then there is -

Wind, Wave, Geothermal - cool and groovy, but there won't be enough of it. Not everyone can live in Iceland you know.
Nuclear Fusion - not ever likely to work; put it this way, a breakthrough has been 'just round the corner' since the 1950s. I think that tells us something.

Alas, the only game in town for energy in the amount demanded by our economies will be conventional nuclear ... oh shit did you just say!? Hopefully by the time we need to start building lots of new plants, we will have worked out the safety aspects. BTW if any of you were about to say what about hydrogen, then what about it! There are no natural reserves of hydrogen on the Earth, so we have to make the stuff, i.e. we have to spend energy to make it - so it is not the energy of the future.

The Oil/Gas lobby will of course maintain that there is plenty of oil until the very last moment they can, by which time they will have transferred their assets into the nuclear industry.

Option

A contract that gives the holder the right but not the obligation to buy or sell a specified quantity of a security at a specified price within a specified time.

Options Strategies

There are a bewildering variety of these, and for some curious historical reason, have many confusing and exotic names - you will come across a number of these in this material. The good news is that, as explained elsewhere, you do not need to learn what these are - you should use the Trade Creator form to find the trades you want to use by direct experimentation.

There is though, one very good reason why it may be of use to become conversant in the use of these naming conventions - to save money on transaction costs; some of the option exchanges have the ability to let you use these strategies (- some have even given them numbers, so you can order like in a Chinese restaurant!) directly, with the transaction costs levied once only, rather than several times. This is a considerable benefit to the trader. Any little thing which gives the small investor an edge, we are in favour of!

Order Types

When buying shares there are number of ways it can be done - it should be pointed out that just because you want to buy a share at a price, which seems available at the time, you may not necessarily be able to. This is why there are limit orders and good-for-the-day. Sometimes an order cannot be filled, or only partially so.

In the wider context, guarantees of execution are very important when trading - there is no point in having done such fine analysis on your own behalf if you find you cannot execute the precise trade you want. In this case trading in the secondary products, i.e. the derivatives, may be more accurate than trading in the shares themselves - in actual share trading, a buyer must be physically matched to a seller, whereas a spreadbetting firm can simply accept your bet at the price it has offered.

One interesting type of order sometimes available is an OCO - this means 'one cancels the other'; the usefulness of this would be in a situation where one was expecting a large move, in one direction or the other, perhaps close to an important reporting date. An OCO is two trades with a condition attached; when the condition is achieved, one of the trades is activated, while the other is cancelled.

Out-the-Money

An option whose strike price is greater (if it is a call) or less (if it is a put) than the current market price of the underlying stock.

Overbought

When there are more buyers than sellers and stock prices hover at a precariously high level.

An overbought market is ripe for a correction, according to the conventional wisdom.

Oversold

When there are more sellers than buyers and stock prices fall to extremely low levels.

An oversold market is poised for an upward movement.

Over Fitting

'Explaining' all the known facts, but having done so in a deficient manner, so that predictions extrapolated from the analysis tend to be very inaccurate.

This can be a particular problem for neural networks; it is possible to train the network to a level where its performance degrades significantly.