What Is Out of the Money (OTM)? Meaning & Example
Definition
An option is out of the money when it has no intrinsic value: a call with a strike above the market price or a put with a strike below it. Its premium consists entirely of time value.
Related terms
An option is in the money when it has intrinsic value: a call with a strike below the market price or a put with a strike above it. ITM options cost more because of that built-in value.
Strike PriceThe strike price is the set price at which an option holder can buy (call) or sell (put) the underlying asset. It determines whether an option has intrinsic value.
Option PremiumThe premium is the price paid by an option buyer to the seller. It reflects intrinsic value, time remaining and expected volatility.
What is Out of the Money (OTM)?
An option is out of the money when it has no intrinsic value: a call with a strike above the market price or a put with a strike below it. Its premium consists entirely of time value.
Can you give an example of Out of the Money (OTM)?
A $60 call on a stock trading at $50 is out of the money.