Out of the Money (OTM) is a term used in options trading to describe a situation when an option’s strike price is different from the current market price of the underlying asset.
Specifically, a call option is said to be OTM if the strike price is higher than the current market price of the underlying asset.
Conversely, a put option is considered OTM if the strike price is lower than the market price of the underlying asset. In other words, the option wouldn’t have any intrinsic value if it was executed immediately.
Traders often purchase OTM options in anticipation of a significant price movement.
However, these options carry a higher risk because the price needs to move significantly for the option to become profitable.
