Options Basics
What is Out-of-the-Money (OTM)?
An option with no intrinsic value - the stock hasn't reached the strike price.
📖 Complete Definition
An out-of-the-money option has no intrinsic value - only extrinsic (time) value. For calls, the stock is below the strike; for puts, above the strike. OTM options are cheaper but require the stock to move significantly to profit. They have lower delta and probability of profit but offer higher percentage returns if successful.
💡 Examples
- →A $110 call is OTM when the stock trades at $100
- →OTM options are often used for speculative trades or hedging
❓ Frequently Asked Questions
Why do traders buy OTM options?
OTM options are cheaper, offering leveraged exposure and high percentage returns if the trade works. They're popular for speculative plays and cheap hedges.
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