out-of-the-money


Also found in: Acronyms, Wikipedia.

Out-of-the-Money Option

1. A call option with a strike price more than the value of the underlying asset.

2. A put option with a strike price less than the value of the underlying asset.

In both these situations, the option contract has no intrinsic value. If an option is deep out of the money, it is unlikely that the option will be in-the money by the expiration date. If possible, out-of-the-money options are sold; if not, they expire worthless and the option holder loses the premium.

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.

References in periodicals archive ?
CBOE S&P 500 Iron Butterfly Index (ticker symbol: BFLY) The CBOE S&P 500 Iron Butterfly Index is designed to track the performance of a hypothetical option trading strategy that 1) sells a rolling monthly at-the-money (ATM) S&P 500 Index (SPX) put and call option; 2) buys a rolling monthly 5% out-of-the-money (OTM) SPX put and call option to reduce risk; and 3) holds a money market account invested in one-month Treasury bills, which is rebalanced on the option roll day and is designed to limit the downside return of the index.
Therefore, out-of-the-money calls would have a negative impact on stockholder wealth and a positive impact on bondholder wealth.
The study, titled " Out-of-the-Money CEOs: How Do Proxy Contests Affect Insider Option Exercises," was co-authored by Jiang and Professor Vyacheslav Fos of the University of Illinois and a graduate from Columbia Business School's Ph.
32, on the date of accelerated vesting, all of the Options were out-of-the-money, that is, the Options' exercise price was greater than the current market value of the Corporation's stock.
This out-of-the-money option saw volume of 19,188 contracts, which actually caused open interest to decrease slightly - from 35,630 to 34,978 contracts.
Early in his career, which included three straight out-of-the-money finishes over the winter, Free House would weave through the stretch, turning his head to gawk at the grandstand and infield.
In order to capitalize on a security's stagnation in the near term, the trader would simultaneously sell an equal number of slightly out-of-the-money puts and slightly out-of-the-money calls with the same expiration date.
Total open interest at this out-of-the-money strike now stands at 10,154 contracts, making it the site of peak front-month put open interest.
Second, the Company will reprice outstanding out-of-the-money stock options held by them.
Ahead of today's news, the equity's out-of-the-money January 75 put had an implied volatility reading of 48 percent while out-of-the-money January 85 call had an implied volatility reading of 47 percent.
In fact, the equity's out-of-the-money January 2007 75 put currently carries an implied volatility reading of 28 percent compared to its out-of-the-money January 2007 85 call and its implied volatility reading of 23 percent.