Out Of The Money (OTM)

Out Of The Money (OTM) (Also referred to as just out-the-money) is a term used when trading options. If an option is out of the money then it has zero intrinsic value. This means that if you closed the option now you would receive no money for it.

For call options, an out-the-money option would have a strike price that is above the current price of the underlying security. For example, if you held a call option for IBM with a strike price of $50 and IBM was trading at $48 then your call option will be out-the-money.

For puts, an out-the-money option, is one where the strike price is below the current price of the underlying security. For example, if IBM were trading at $48 and your put option had a strike price of $45 then it would be out-the-money.