out of the money
An option with no intrinsic value — a call option when the stock price is below the strike price, or a put option when the stock price is above the strike price.
Example
“With a $70 strike price and the stock at $60, the call option was $10 out of the money.”
Memory Tip
OUT OF THE MONEY = option has no real value yet. Call: stock below strike. Put: stock above strike.
Why It Matters
Understanding out of the money options is crucial for traders and investors because these options have zero intrinsic value and are cheaper to purchase than in the money options. This matters for your portfolio because buying out of the money options can be a lower-cost way to speculate on price movements, though they carry higher risk of total loss.
Common Misconception
Many people mistakenly believe that out of the money options are worthless and cannot be profitable. In reality, these options still have time value and can become very profitable if the stock price moves in the desired direction before expiration.
In Practice
Suppose Apple stock is trading at $150 per share. A call option with a $160 strike price is out of the money because the stock price is below the strike. If you buy this option for $2 per share and Apple rises to $165 before expiration, your option is now in the money and could be worth $5 or more, turning your $200 investment into $500 or more.
Etymology
OUT OF THE MONEY = the option has no intrinsic value. There's no profit in exercising it.
Common Misspellings
Trade stocks, options & crypto commission-free
Related Terms
More in trading
Other trading terms you should know
See Also
Need help with spelling?
Instant spelling checker with dialect variants for 2,000+ words.