Options trading
Out of the money (OTM)
Definition
A call with a strike above the stock price, or a put with a strike below it. Its premium is all time value, and it expires worthless unless the stock gets past the strike.
Example
Say a stock trades at $40 and you buy a $45 call for $0.60, or $60 per contract. If the stock rises to $44 by expiration, a 10% gain, the call still expires worthless because the stock never got past the strike. The stock has to close above $45.60 at expiration for the trade to make money.
Hypothetical numbers, for illustration only.
Also defined in
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