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Definition of 'Underwater'

When used in options trading the term underwater refers to an option that is out-of-the-money.

For example, a call option that has a strike price higher than the current market price or a put option with a strike price lower than the current market price would be options that are underwater.

Underwater in real estate investing refers to an owner who has negative equity in their home. This will happen when the price of their house falls below what they owe on the home and creates what is referred to as a negative equity trap.

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