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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
An option with no intrinsic value. Calls when stock is below strike; puts when above.
Why It Matters
OTM options are cheap lottery tickets. A $120 call on a $100 stock costs little because the stock needs to rise 20%+ just to have value at expiration. Most OTM options expire worthless, but the ones that hit can return 500-1000%+. High risk, high reward.
Key Points
- OTM calls: strike > stock price; OTM puts: strike < stock price
- Cheaper than ITM/ATM but require larger stock moves to profit
- About 70-80% of OTM options expire worthless - know what you're buying
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Common Questions
An option with no intrinsic value. Calls when stock is below strike; puts when above. OTM options are cheap lottery tickets. A $120 call on a $100 stock costs little because the stock needs to rise 20%+ just to have value at expiration.
OTM options are cheap lottery tickets. A $120 call on a $100 stock costs little because the stock needs to rise 20%+ just to have value at expiration. Most OTM options expire worthless, but the ones that hit can return 500-1000%+. High risk, high reward.
OTM calls: strike > stock price; OTM puts: strike < stock price
Cheaper than ITM/ATM but require larger stock moves to profit
About 70-80% of OTM options expire worthless - know what you're buying