Out Of The Money (OTM) is the opposite of In The Money. In this situation, the current market price of a commodity is lower than its strike price. Here an asset does not have any intrinsic value.
Compared to In the Money and At The Money, this trading situation is less expensive because there is no intrinsic value here. Whereas ATM is close to having intrinsic value and ITM has intrinsic value.
What is a Call and Put in “Out Of The Money”?
In the “Out Of The Money” situation, you can opt for the call option when the strike price of a commodity is higher than its current market price. In this case, you can buy a stock at a better and higher price.
On the flip side, you can opt for the put option in the “Out Of The Money” situation when the market price of a given commodity is higher than its strike price. In this situation, you can sell the stock at a lower value.
Out of the money example
Let’s assume you are trading on oil with its strike price of $20 and the current market price of $12. Now, for a successful call option, the market price of the given asset should decrease further. But if it doesn’t decrease, you will lose.
In the same way, for a successful put option, the market price should increase.
Trading Out Of The Money is beneficial because it is cheaper than the other two options. Also, it offers a higher percentage of gain. So, with a thorough understanding of “Out Of The Money”, you can carefully choose the put or call option.