Out-of-the-money (OTM)

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When the price of an Option has not reached its strike price, it is called in the OTM.

call option is out-of-the-money if the 'strike price is greater than the current market price' of the underlying asset.

put option is out-of-the-money if the 'strike price is less than the current market price' of the underlying asset.

Examples: 

Call Options

Option with Strike Price = Rs 115 OTM Call Options
Option with Strike Price = Rs 110 OTM Call Options
Current Market Price = Rs 109 ATM Call Options
Option with Strike Price = Rs 105 ITM Call Options
Option with Strike Price = Rs 100 ITM Call Options

In above table, if the current market price moves to Rs 111, the option with strike price Rs 110 will become in-the-money call option. 

Put Options

Option with Strike Price = Rs 115 ITM Call Options
Option with Strike Price = Rs 110 ITM Call Options
Current Market Price = Rs 109 ATM Call Options
Option with Strike Price = Rs 105 OTM Call Options
Option with Strike Price = Rs 100 OTM Call Options

 

Note:

  • ITM: In-the-money Options
  • ATM: At-the-money Options
  • OTM: Out-of-the-money Options
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