Out of the money
Also called: OTM
An option is out of the money when exercising it now would pay nothing: a call with a strike above the stock price, or a put with a strike below it. Its whole premium is time value.
Out-of-the-money options are cheap because they need a move to pay off. Most expire worthless, which is why buying them is often compared to buying a lottery ticket.
Related terms
- In the money: An option is in the money when exercising it now would pay something: a call whose strike is below the stock price, or a put whose strike is above it.
- Strike price: The strike price is the fixed price at which an option lets its holder buy (for a call) or sell (for a put) the underlying stock.
- Option premium: An option's premium is the price paid to buy it.
Practise with $10,000 in play money
Free. No real money involved.
For learning only. This isn't financial advice.