Options Disclosure Document (ODD)

What Is an Options Disclosure Document (ODD)?

The options disclosure document (ODD) is a publication issued by the Options Clearing Corporation (OCC) that fills in as an important aide for options traders. The thorough document — officially named **Characteristics and Risks of Standardized Options — **is especially essential for amateur options traders.

Options are financial derivatives in light of the value of underlying securities like stocks. Options give investors the right, yet not the obligation, to buy or sell an underlying asset at a settled upon price inside a specific time period.

The ODD booklet incorporates definitions for the most common options trading terms and valuable models outlining different trading situations. It gives general disclosures on the risks of trading options. Both the Securities Exchange Act and the Financial Industry Regulatory Authority (FINRA) require brokers and brokerage firms to deliver the options disclosure document and its supplements to customers.

Understanding an Options Disclosure Document (ODD)

Established in 1973, the OCC clears transactions for exchange-recorded options, security futures, and over-the-counter options. As the world's biggest equity derivatives clearinghouse, the OCC works under the jurisdiction of the Commodity Futures Trading Commission and the Securities and Exchange Commission (SEC).

In February 1994, the OCC distributed the main release of the options disclosure document (ODD), which has taken on a number of supplements over the subsequent many years. These supplements explain prior concepts and oblige the developing complexity of options products over the development of the derivatives market.

The current rendition of the document runs 183 pages. The fundamental chapter headings include:

• Options Nomenclature
• Options on Equity Securities
• Index Options
• Debt Options
• Foreign Currency Options
• Deftly Structured Options
• Exercise and Settlement
• Tax Considerations, Transaction Costs, and Margin Requirements
• Principal Risks of Options Positions

Beginning in December 1997, the Options Clearing Corporation started adding supplements to the furthest limit of the ODD booklet. These supplements effectively add new data, revise recently distributed data, or supplant sections of the booklet. The supplements from 1997 through 2012 are remembered for the ODD booklet.

The latest ODD supplement is dated October 2018 and is a separate document of 16 pages. Among the changes remembered for this update, which amended the April 2015 supplement, were modified sections dealing with implied volatility index options and foreign index options.

4,976,978,704

The total number of contracts cleared by the OCC in 2019. This incorporates equity, index, single stock futures, and index/other futures contracts.

Requirements for Options Disclosure Document (ODD)

Since the ODD is viewed as a key publication in helping investors to comprehend the intricacies of options trading, there are rules to guarantee every investor has ready access to the document.

The SEC is responsible for supporting the supplements to the options disclosure document. Brokers are required to deliver the ODD and supplements to their customers, as indicated by Rule 9b-1 of the Securities Exchange Act. FINRA likewise has its own rule expecting brokers to supply their customers with the latest ODD. This must occur at or before the time the broker endorses the customer to trade options.

Moreover, FINRA expects brokers to disperse each new ODD supplement to customers who have already received the ODD. Firms can communicate the ODD and supplements to their customers through a mass mailing or electronically to those customers who have assented to electronic delivery.

You can find both the October 2018 supplement and the vitally ODD booklet as PDF downloads on the Options Clearing Corporation's website.

Special Considerations

Beside the fundamental description of different option types, maybe the main section of the ODD is the "Principal Risks of Options Positions." Someone new to the options markets should, in all seriousness carefully read this section, which goes over the primary risks of every one of the option types made sense of in the document and gives a few instances of how a trader might lose money. Even a seasoned trader would find the document valuable for updates. The risk disclosure segment obtusely starts: "An option holder runs the risk of losing the whole amount paid for the option in a somewhat short period of time."

The ODD proceeds to make sense of other options trading risks, for example, different risks to option writers, risks of combination transactions, (for example, option spreads), risks occurring from the disruption in the markets of underlying assets, and special risks of index options.

Features

• The Options Clearing Corporation is responsible for giving the options disclosure document and its supplements.
• The 183-page booklet covers subjects important to options investors like options definitions, index options, debt options, foreign currency options, and risks of options trading.
• Investors can get duplicates of the booklet and supplements through their broker or online at the OCC's website.
• In 1994, the OCC distributed the principal options disclosure document, which furnishes investors with important instructive data in regards to options trading.