Out-of-the-money (OTM)
OTM means the option has no intrinsic value at the current underlying price.
Quick facts
| Field | Value |
|---|---|
| Category | Options Trading Terminology |
| Use | Learn vocabulary to read chains and manage risk |
Definition
Out-of-the-money (OTM) options have zero intrinsic value if they expired right now. They are usually cheaper but need a larger move to become profitable for the buyer.
Quick example
Info
If spot is 100, a 110 strike call is OTM; it needs spot > 110 at expiry to be ITM.
Relative premium by moneyness (illustrative)
OTM options are usually cheapest; they need a larger move to pay off.
Summary
- OTM = cheaper but needs bigger move.
- Often used in spreads and hedges.