Also found in: Acronyms.

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


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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Out-of-the-money puts are contracts that make money if the stock drops and are typically used by investors to protect against a fall in the share price.
For others maturities, the proposed method presents the lowest MAPE for moneyness equal to deepout-of-the-money, out-of-the-money and at-the-money.
Historically, insurers have categorized these two concepts based upon whether the credit exposure was incurred in the normal course of trade or as a result of commodity price swings that rendered certain contracts underwater or "out-of-the-money" (as one "financial" risk example).
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.
The price of a near-dated out-of-the-money, call option, which offers its holder the right to buy above the current Brent futures price has surpassed that of near-dated, out-of-the-money put options, which offer the holder the right to sell below the current prompt price.
Although it remains to be seen whether Baker & Botts applies to fee-defense fees of lender's counsel, debtors and out-of-the-money subordinate debt holders or unsecured creditors' committees could use the threat of costly fee-defense litigation to leverage a settlement that might otherwise be unavailable.
In order not to breach regulatory capital adequacy ratios, the bank had to cut losses and sold illiquid and out-of-the-money government securities and booked trading losses on said securities, the bank explained.
* Vyacheslav Fos, University of Illinois, Urbana-Champaign, and Wei Jiang, Columbia University, "Out-of-the-Money CEOs: Private Control Premium and Option Exercise by CEOs"
However, it doesn't show more superiorities than trinomial tree model when calculating out-of-the-money options.
A metric known as skew, which measures the perceived volatility priced into out-of-the-money puts versus out-of-the-money calls on a stock, is inverted - meaning it costs more for options that anticipate upside rather than downside.
The option is insensitive to changes in the underlying price and is unlikely to be exercised--it is deeply "out-of-the-money".