In the options market, "OTM" stands for "Out-of-the-Money." An option is considered out-of-the-money when the current market price of the underlying asset is not favorable for the option holder to exercise the option.
For call options:
A call option is out-of-the-money when the
strike price is higher than the current market price of the underlying asset.
For put options:
A put option is out-of-the-money when the strike price is lower than the current market price of the underlying asset.
Options that are out-of-the-money generally have no intrinsic value, but they may still have time value (extrinsic value) if there is time remaining until expiration. The opposite of out-of-the-money options are in-the-money (
ITM) options, where the option's strike price is favorable for the option holder to exercise. Options that have a strike price equal to the current market price are considered at-the-money (
ATM).
