Glossary 975 
Options Clearing Corporation (OCC): the issuer of all listed option contracts that 
are trading on the national option exchanges. 
Original Issue Discount (O1D): the initial price of a zero-coupon bond. The owner 
owes taxes on the theoretical interest, or phantom income, generated by the annu­
al appreciation of the bond toward maturity. In reality, no interest is paid by the 
zero-coupon bond, but the government is taxing the appreciation of the bond as if 
it were interest. 
Out-of-the-Money: describing an option that has no intrinsic value. A call option is 
out-of-the-money if the stock is below the striking price of the call, while a put 
option is out-of-the-money if the stock is higher than the striking price of the put. 
See also In-the-Money, Intrinsic Value. 
Over-the-Counter Option (OTC): an option traded over-the-counter, as opposed 
to a listed stock option. The OTC option has a direct link between buyer and sell­
er, has no secondary market, and has no standardization of striking prices and expi­
ration dates. See a'lso Listed Option, Secondary Market. 
Overvalued: describing a security trading at a higher price than it logically should. 
Normally associated with the results of option price predictions by mathematical 
models. If an option is trading in the market for a higher price than the model indi­
cates, the option is said to be overvalued. See a'/so Fair Value, Undervalued. 
Pairs Trading: a hedging technique in which one buys a particular stock and sells 
short another stock. The two stocks are theoretically linked in their price history, 
and the hedge is established when the historical relationship is out of line, in hopes 
that it will return to its former correlation. 
Parity: describing an in-the-money option trading for its intrinsic value: that is, an 
option trading at parity with the underlying stock. Also used as a point of refer­
ence-an option is sometimes said to be trading at a half-point over parity or at a 
quarter-point under parity, for example. An option trading under parity is a dis­
count option. See a'/so Discount, Intrinsic Value. 
PERCS: Preferred Equity Redemption Cumulative Stock. Issued by a corporation, 
this preferred stock pays a higher dividend than the common and has a price at 
which it can be called in for redemption by the issuing corporation. As such, it is 
really a covered call write, with the call premium being given to the holder in the 
form of increased dividends. See Call Price, Covered Call Write, Redemption Price. 
Physical Option: an option whose underlying security is a physical commodity that 
is not stock or futures. The physical commodity itself, typically a currency or