Out-of-the-money option

(redirected from Out-of-the-Money Options)

Out-of-the-money option

A call option is "out of the money" if the strike price is greater than the market price of the underlying security. That is, you have the right to purchase a security at a price higher than the market price, which is not valuable. A put option is out of the money if the strike price is lower than the market price of the underlying security.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
On a pro forma basis, current OvaScience securityholders will own approximately 17% of the combined company, current Millendo securityholders (assuming the Millendo option pool is fully allocated) will own approximately 63% of the combined company (exclusive of participation in the associated financing), and investors participating in the financing will acquire approximately 20% of the combined company, in each case excluding the available OvaScience option pool and certain out-of-the-money options and subject to adjustment based on OvaScience's anticipated net cash balance at the time of closing.
First, option prices are extremely sensitive to the underlying asset price, and a lack of synchronization can generate: "arbitrage" opportunities (Galai, 1979), violate lower bound constraints (Bhattacharya, 1983, Culumovic and Welsh, 1994, Stephan and Whaley, 1990, Fleming, Ostdiek and Whaley, 1995) and can generate large errors in option prices, especially for low-priced out-of-the-money options (George and Longstaff, 1993).
For a call option, in-the-money options refer to options with S/K being greater than 1, at-the-money options refer to options with S/K being 1, and out-of-the-money options refer to options with S/K being less than 1.
However, it doesn't show more superiorities than trinomial tree model when calculating out-of-the-money options.
The SEC said that McGinnis's pattern was to buy Green Mountain Coffee securities, usually out-of-the-money options, just in advance of earnings announcements.
Changes in interest have a lesser effect on out-of-the-money options than at- or in-the-money options.
Indeed, the basket-index put spread rose fourfold, from 0.8 cents per dollar insured before the financial crisis to 3.8 cents during the crisis, for deep out-of-the-money options. An increase in the spread between the basket and the index means that financial sector index options became cheaper relative to the individual firm options.
Deep out-of-the-money options will have deltas close to or at zero.
The mean (median) number of out-of-the-money options is 174,915 (50,000).
This simply shows the specific features of options and their repartition in the sample (in-the-money, at-the-money and out-of-the-money options).
made headlines last year when it announced plans to jettison its options program in favor of restricted stock and cash out employees' existing out-of-the-money options.