Tue. Oct 20th, 2020

Options Funda

All about options and its strategies

Out-The-Money Option (OTM)

1 min read

An out-of-the-money (OTM) option is an option that would lead to a negative cashflow if it were exercised immediately. A call option on the index is out-of-the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price).

If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price.

OTM strikes have only one attribute unlikely from ITM strikes i.e. time value in their premium. Deep OTM strikes have low volume and often low bid-ask spread.

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