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Out-of-the-money

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out-of-the-money

Used to describe a call option with a strike price above the price of the underlying asset or a put option with a strike price below the price of the underlying asset. For example, a put option to sell 100 shares of Cisco Systems stock at $50 per share is out-of-the-money if the stock currently trades at $70. Even though an out-of-the-money option has no intrinsic value, it may have market value.

Out-of-the-money. An option is out-of-the-money when the market price of an instrument on which you hold an option is not close to the strike price.

Call options -- which you buy when you think the price is going up -- are out-of-the-money when the market price is below the strike price.

Put options -- which you buy when you think the price of the underlying instrument is going down -- are out-of-the-money when the market price is higher than the strike price.

For example, a call option on a stock with a strike price of 50 would be out-of-the-money if the current market price of the stock were $40.

And a put option at 50 on the same stock would be out-of-the-money if its market price were $60. When an option expires out-of-the-money, it has no value.

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