Definition
An option is out-of-the-money when exercising it would not be profitable. For calls, the stock price is below the strike price. For puts, the stock price is above the strike price. OTM options have only time value and are cheaper than ITM options but riskier.
Formula
Example
A $100 call option is OTM when the stock trades at $90. The option has no intrinsic value.
FAQ
What is Out Of The Money (OTM)?
An option with no intrinsic value that would not be profitable if exercised.
How do you calculate Out Of The Money (OTM)?
A common formula for Out Of The Money (OTM) is: Call OTM: Stock Price < Strike Price | Put OTM: Stock Price > Strike Price
Why is Out Of The Money (OTM) important?
Out Of The Money (OTM) helps investors evaluate options and make more informed decisions.
Related Terms
In The Money (ITM)
An option with intrinsic value that would be profitable if exercised immediately.
At The Money (ATM)
An option where the strike price equals the current stock price.
Time Value (Options)
The portion of an option premium above its intrinsic value.
Strike Price
The predetermined price at which an option can be exercised.