Out of the Money (OTM)

Out of the money (OTM) refers to an options contract that currently has no intrinsic value. For a call option, this occurs when the underlying asset’s market price is below the strike price, meaning the option holder would not profit from exercising the option. For a put option, it occurs when the market price is above the strike price. OTM options are generally less expensive than in-the-money options, but they are also more speculative.

Example

A trader holds a call option with a strike price of $60, but the underlying stock is trading at $50, making the option out of the money and unprofitable if exercised.