Out of the Money (OTM)

An out-of-the-money (OTM) option has no intrinsic value, meaning immediate exercise would not be profitable. A call option is OTM when the underlying asset's price is below the strike price, and a put option is OTM when the underlying is above the strike price. OTM options consist entirely of extrinsic (time) value and will expire worthless if the underlying doesn't move enough before expiration. They are cheaper than ATM or ITM options, offering higher leverage but lower probability of profit. OTM options have deltas less than 0.50 (calls) or greater than -0.50 (puts). They are popular for speculation (low cost, high potential return), hedging (cheap protection via OTM puts), and income generation (selling OTM options has high probability of expiring worthless). Deep OTM options are often called "lottery tickets."