Out Of The Money Options
Out of the Money Call Option
Out of the Money Put Option
- What are Options?
- What is a Call Option?
- What is a Put Option?
- In The Money Call
- In The Money Put
- Deep in the Money
Definition of "Out of the money" and "out-of-the-money"
A call option is said to be out of the money if the current price of the underlying stock is below the strike price of the option.
A put option is said to be out of the money if the current price of the underlying stock is above the strike price of the option.
Example of an "Out of the Money CALL Option":
If the price of YHOO stock is at $37.50, then all of the call options with strike prices at $38 and above are out of the money.
Why are they out of the money? They are out of the money because those options don't have any intrinsic value. If you have the right to buy YHOO at $40 and the current market price is $37.50, then that YHOO $by $2.50 is out of the money by $2.50. If you had that call and you had to exercise it, you could buy shares of YHOO at $40 and sell them immediately in the open market for $37.50 for a loss of $2.50. Would you do that? Absolutely not! So they are out of the money.
Likewise the YHOO $45 and $50 calls are also way out of the money.
If YHOO is at $37.50, then all of the call options with a strike price of $37 and below are in the money.
Here are the top 10 option concepts you should understand before making your first real trade: