Frequently asked questions
What is an out of money option?
An out-of-the-money option is an option whose exercise price is less favorable than the current market price of the underlying asset. For a call option, this means the strike price is higher than the market price, and for a put option, the strike price is lower than the market price.
What is an out of the money call option exercise?
An out-of-the-money call option has a strike price higher than the current market price of the underlying asset. Exercising it would not be profitable since buying the asset at the strike price would cost more than buying it at the current market price.
What is in vs out of the money options?
"In the money" options have a favorable exercise price compared to the current market price of the underlying asset, meaning exercising them would be profitable. "Out of the money" options have an unfavorable exercise price, making them less likely to be exercised for a profit.
Benefits
Out-of-the-money options can be cheaper to purchase and offer higher leverage, making them attractive for speculative strategies. They also carry limited risk since the maximum loss is the premium paid.