Out of the money (OTM)
Principles of Finance glossary · Time Value of Money
Definition
An option whose immediate exercise would yield no payoff.
Out of the money (OTM) in plain English
An option is a contract that lets you buy or sell something at a fixed "strike" price. "Out of the money" means that fixed price is currently worse than the real market price, so using the option right now would gain you nothing. For example, if you hold the right to BUY a stock at $50 but the stock only trades at $40, exercising is pointless — you'd never pay $50 for something you can grab for $40. It's like owning a coupon for $50 sneakers when the same sneakers are on the shelf for $40; the coupon is worthless at the moment (though it could pay off later if prices move).
Also called: OTM
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